The U.S. economy heaved a sigh of relief with today’s Consumer Price Index release. After 16 months of rising inflation, this is the first report that shows disinflation in the economy. However, the decline was mostly driven by a large decline in energy prices. Core inflation (excluding volatile food and energy prices) actually accelerated and came in far higher than expected.
Since the beginning of 2021, a combination of massive government spending, supply chain disruptions, and strong consumer demand has unleashed high and persistent inflation that has dampened consumer confidence and created challenges for the Federal Reserve. April’s acceleration in core inflation raises concerns that inflation may still not have crested yet.
Here are the four takeaways of today’s report:
1. The main reason for the slowdown in headline inflation was a large decline in energy costs.
- Growth in energy, apparel, communication, and used car costs slowed in April. Microchip shortages and supply chain disruptions have contributed to sky-high prices in these categories, but they softened slightly in April. Year-over-year used car price inflation fell from 35.3% to 22.7%.
2. Gas, food, and housing are still a menace.
- Food prices (9.4%) remain high as a result of lingering supply chain issues exacerbated by the war in Ukraine.
- Though the increase in gas prices (43.6%) moderated compared to March’s rate (48.0%), it still is one of the biggest reasons for sky-high inflation overall.
- Despite a decline in year over year disinflation of 6.2%, month over month core inflation went up to 0.6% in April from 0.3% in March—suggests that we might not be near passing the peak point of the inflation.
3. High inflation expectations remain a concern
- Inflation can be a self-fulfilling prophecy as consumers keep their current consumption levels high to avoid even higher prices in near future. Last month’s spike in household consumption may have reflected consumers bringing forward purchases to avoid even higher prices in the future. Growth in household consumption increased from 0.6% in February to 1.1% in March.
- And high inflation expectations remain a concern this month as well. As of April, 4 in 5 job seekers expect prices to go up more in the next 6 months, according to the Ziprecruiter monthly job seeker survey.
4. High inflation is eroding wages. Real wages are down 2.8% compared to last year.
- Employees bring home a bigger paycheck but when they go to the grocery store or gas station, they feel the pinch of their dollars having less purchasing power. With inflation standing at 8.3%, real wages—income that employees get after inflation is taken into account—are 2.8% lower than last year.
- Eye-popping price tags in used and new cars, spikes in gas prices and transportation services make remote work the new cost-containment measure for employees.
- The ever-increasing commuting costs increased an already-high appetite for remote work opportunities. According to the ZipRecruiter monthly job seeker survey, 7 in 10 job seekers want a job offering either a higher pay, remote work option, or with a shorter commute due to spikes in gas prices.
