Consumer prices in the United States rose 4.9% in the 12 months to April, expanding at the smallest pace in two years, the US Labor Department said on Tuesday in data that showed progress in the Federal Reserve's battle against inflation as debate grew on whether the central bank would be ready to pause its aggressive interest rate hikes
WASHINGTON (Pakistan Point News / Sputnik - 10th May, 2023) Consumer prices in the United States rose 4.9% in the 12 months to April, expanding at the smallest pace in two years, the US Labor Department said on Tuesday in data that showed progress in the Federal Reserve's battle against inflation as debate grew on whether the central bank would be ready to pause its aggressive interest rate hikes.
The Consumer Price Index for All Urban Consumers (CPI) was forecast to grow 5% in the year to April, unchanged from March. "The all items index increased 4.9 percent for the 12 months ending April; this was the smallest 12-month increase since the period ending April 2021," the Labor Department said in a news release.
On a monthly basis, annual CPI was flat, growing at 0.4% for April, with no change from March. The core reading on year-on-year and month-on-month CPI, which strips out volatile food and energy prices, was also unchanged from March, growing at 5.5% and 0.4%, respectively, in April.
Economists welcomed the slowing in the pace of the CPI as both employment and wage experienced runaway growth, complicating the Fed's task of pausing on interest rate hikes it has carried out for more than a year in its bid to fight inflation.
"We have an overheated economy," Neil Dutta, head of economic research at Renaissance Macro Research group, said, referring to US non-farm payrolls growth for April that came in at 253,000, or 40% above expectations.
The labor market has been the engine of the US economic recovery from the pandemic measures, with hundreds of thousands of jobs being added without fail since June 2020 to make up for the initial loss of 20 million jobs to the pandemic. Average monthly wages have also grown without a stop since May 2021. The Fed has identified robust job and wages growth as two of the key drivers of inflation.
Annual growth in the CPI hit a 40-year high in June 2022, expanding at 9.1%.� While inflation has slowed considerably since, it is still more than twice the Fed's target of 2% per year.
The central bank has raised rates by ten times since the end of the coronavirus pandemic in March 2022, adding a total of 5% to the previous 0.25%. Until the overwhelmingly strong jobs data for April, there had been speculation that the Fed could pause interest rate hikes from June onward.
The Fed has a mandate of ensuring maximum employment through a jobless rate of 4% or below, and keeping inflation "manageable." The last was a task easily achieved before the COVID-19 breakout, when prices expanded less than 2% a year. The pandemic and the trillions of dollars of relief spending by the government, however, triggered runaway inflation since mid-2021.
After its last rate hike, the Fed said it will closely monitor data in the coming months�and assess their effectiveness in helping the United States return to its inflation target of 2%.
Despite April's jobs number and inflation being more than twice the Fed's annual target, it would not be surprising if the Fed stalls on rate hikes from June as data increasingly points to weakness in the US economy, analysts said.
Over the past week alone, gross domestic product data for the first quarter showed an anemic 1.1% growth on the year versus the 2.6% in the fourth quarter of 2022.
A US banking crisis that broke in March resurfaced in part this month with the takeover of San Francisco-based First Republic Bank. Adding to that were concerns about a potential US debt default, the first ever, and more weak readings on factory orders and durable goods.
