Inflation slowed in April to lowest rate since 2021

Consumer prices rose 0.4 percent in April to hit an annual increase of 4.9 percent, according to inflation data released Wednesday by the Labor Department. That’s the lowest annual inflation rate since April 2021.

The consumer price index (CPI), which measures everything consumers spend money on — from rent to gasoline — showed inflation accelerating slightly in April, in line with expectations, but falling on an annual basis.

Economists had been expecting prices to accelerate by 0.4 percent in April, up from 0.1 percent in March, and projected annual inflation to hold steady at 5 percent.

“Overall, the April inflation report is encouraging and suggests that the economy is cooling in a gradual and controlled manner that is allowing prices to stabilize without sharp job losses,” wrote Julia Pollak, chief economist at ZipRecruiter, in a Tuesday analysis.

“We expect to see further cooling in inflation in the coming months as the recent tightening of credit conditions plays out in the real economy,” she added.

Falling food prices take a bite out of inflation

Grocery prices, which have been running higher than inflation overall and represent some of the inflation felt most acutely by consumers, dropped 0.2 percent in April after falling 0.3 percent in March.

The price of milk dropped 2 percent, oranges fell 3.8 percent and hot dogs fell 2.9 percent in April. Ham was up 2 percent on the month while lettuce increased 3.5 percent.

Energy prices are more than 5 percent lower than they were a year ago, with gasoline down more than 12 percent. Fuel oil is 20.2 percent lower than it was in April of last year.

Cars, auto insurance drive prices higher

“Core” inflation in the CPI, which takes out the more volatile categories of food and energy, was up 5.5 percent annually, with the price of used cars accelerating to 4.4 percent on the month.

The price of auto insurance also affected the monthly core measurement, rising 1.4 percent on the month for an annual increase of more than 15 percent.

The inflation rate “is well below its peak of 8.9 percent reached last summer, and has been falling for 10 months in a row, even as the unemployment rate has fallen,” Pollak wrote.

“Inflation would be even lower, were it not for the jump in used car prices in April.”

How does the Fed respond?

Inflation has now fallen for 10 consecutive months, which may give the Federal Reserve room to pause interest rate hikes.

The Fed has raised interest rates 10 times in consecutive meetings since last March to bring down inflation in one of the fastest cycles of quantitative tightening on record. Inflation has been falling somewhat steadily since the middle of last year, when prices in the CPI topped out at a 9.1 percent annual increase in June.

Inflation started going up initially in 2021 because of backed-up supply chains, a rush of pent-up consumer demand and the gradual adjustment to life after COVID-19 lockdowns.

Prices stayed elevated because of an energy shock — that has now mostly subsided — related to the war in Ukraine, as well as the increased power of companies to keep prices high.

Even so, New York Fed President John Williams said Tuesday the central bank’s rate-setting committee could continue with interest rate hikes later this year.

“We haven’t said we’re done raising rates. We made a decision in our May meeting to raise the federal funds target range … and we didn’t make a decision [about] what we’re going to do in our future meetings,” he said during a presentation at the Economic Club of New York on Tuesday.

Many economists have been concerned that higher interest rates, which slow the economy in a general way by making financing more expensive, may be too blunt an instrument to deal with inflation caused by profit margin expansion driven by changing business models.

Updated at 9:17 a.m.