US consumer prices rise at fastest pace since 2008

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US consumer prices rose 4.2 per cent in April over their level a year ago, a bigger jump than economists had expected, which could fuel concerns that inflationary pressures are settling in.

The US inflation reading is attracting special attention because of fears among some investors, economists and analysts that hefty fiscal support, supply bottlenecks and high demand triggered by the swift coronavirus vaccination rollout will lead to a risky surge in prices in the coming months.

Stripping out volatile food and energy costs, the CPI rose from 1.6 per cent in March to 3 per cent in April on an annual basis. On a monthly basis, the headline CPI rose by 0.8 per cent while the core reading increased by 0.9 per cent.

The 4.2 per cent in the headline figure marks the biggest rise since 2008, and a significant jump compared to the 2.6 per cent annual increase posted in March.

Line chart of Consumer price index, change, %, year-on-year showing Inflation has picked up as the US recovers from the pandemic

However, Federal Reserve officials and senior Biden administration economists including Janet Yellen, the Treasury secretary, have said they expect any surge to be temporary.

Not only are the high CPI numbers due to “base effects” because they compare to last year’s dip in inflation at the start of the coronavirus crisis, US economic policymakers also believe that the disinflationary pressures that have dominated the global economy over the past few decades have not subsided.

Fed officials have become more tolerant of inflation partly because consumer prices have so frequently sat below the central bank’s 2 per cent target, and even with loose monetary policy they have struggled to get it to rise.

“To the extent that supply-chain congestion and other reopening frictions are transitory, they are unlikely to generate persistently higher inflation on their own,” Lael Brainard, a Fed governor, said on Tuesday.

“A persistent material increase in inflation would require not just that wages or prices increase for a period after reopening, but also a broad expectation that they will continue to increase at a persistently higher pace,” she said.

Despite the limited concern at the Fed and Treasury, alarm over higher inflation has become fairly widespread in US business since the last reading on CPI, and has been cited by investors as a reason for a sharp stock market sell-off this week.

Warren Buffett, the chief executive of Berkshire Hathaway, said earlier this month that executives at his company were seeing “very substantial” inflation. “People are raising prices to us, and it’s being accepted.”

Tyson Foods this week said it had raised prices substantially. “Overall, we’re seeing an accelerating inflationary environment that is creating a meaningful headwind for prepared foods in the back half of the year,” said Donnie King, its chief operating officer. “We’re seeing raw material costs up over 15 per cent as well as increases in logistics, packaging and labour.”

Additional reporting by Matthew Rocco

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