The Consumer Price Index rose 4.9% between April 2022 and April 2023, marking a continued decline from elevated inflation even as higher price levels continue to constrain household budgets.
The month-to-month increase of 0.4% was in line with analyst expectations, while core inflation, which factors out the more volatile food and energy categories, also rose 0.4% and in line with expectations. Food prices were flat and energy prices rose 0.6% while shelter prices, one of the largest contributors to the overall month-to-month increase, rose 0.4%, according to a report from the Bureau of Labor Statistics.
Despite the slight decrease from the 5.0% headline inflation recorded in March 2023, food and electricity prices have increased 7.7% and 8.4%, respectively, between April 2022 and April 2023. Real wages, which consider the effect of inflation on pay increases, fell 0.7% between March 2022 and March 2023, according to more data from the Bureau of Labor Statistics.
The latest inflation data comes as officials at the Federal Reserve increased the target federal funds rate in an effort to slow price level increases, a policy regime which raises the cost of borrowing funds for consumers and businesses, thereby lowering inflation, but dampening overall economic activity. Federal Reserve policymakers introduced a quarter-point rate hike last week, marking a continued slowdown from previous rate hikes and reflecting caution as the financial sector reels from the collapse of three medium-sized banks.
Officials at the Federal Reserve have broadly targeted a 2.0% inflation rate and maximum employment over the past four decades. Even amid the elevated price level environment and macroeconomic constraints such as a bottlenecked supply chain, the labor market has been a relative bright spot in the economy: unemployment was charted at 3.4% last month, according to data from the Bureau of Labor Statistics released on Friday. Low labor force participation, on the other hand, has worsened inflationary pressures and supply chain constraints as businesses increase wages to fill their payrolls and seek to retain more workers.
Economic growth in the United States slowed to a 1.1% annualized rate in the first quarter, marking a significant decline from previous quarters, according to an advance estimate released last week by the Bureau of Economic Analysis. Federal Reserve officials have also concluded that the present instability in the financial system warrants a recession forecast for the latter portion of the year, followed by a predicted recovery over the subsequent two years.
President Joe Biden has repeatedly asserted that his policies are responsible for easing price levels in some product categories, even as inflation remains between three times and four times higher than levels seen at the start of his administration. “We are making progress in the fight against inflation,” he commented in one statement released in April. “The fight against inflation isn’t over, and every day my administration is working to give families more breathing room.”
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Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen each previously asserted that rising price levels were a temporary result of the demand increases that followed worldwide government lockdowns. Yellen admitted last year that she was incorrect due to “unanticipated and large shocks to the economy that have boosted energy and food prices.”
