The headline inflation gauge has slowed to 6.3% over the past year

The Fed’s closely watched inflation gauge rose 6.3% in April of the previous year, the first slowdown since November 2020 and a sign that higher prices may finally moderate, at least for now.

inflation figure The Ministry of Commerce reported on Friday It was below a four-decade high of 6.6% in March. While high inflation continues to cause hardships for millions of families, any slowdown in price increases, if it continues, will provide some modest relief.

The report also showed that consumer spending rose at a healthy 0.9% annual rate from March to April, outpacing the monthly inflation rate for the fourth time in a row. The constant willingness of the country’s consumers to continue spending freely despite price inflation helps sustain the economy. However, all this spending helps keep prices high and could make the Fed’s goal of taming inflation Even more difficult.

“Inflation is finally slowing, but it’s still fairly early for five-year-olds,” said Bill Adams, chief economist at Comerica Bank.

Adams noted that gas and food prices rose in May and that Russia’s war against Ukraine and COVID-19-related shutdowns in China could further disrupt supply shortages and drive prices up again.

Consumers’ resilience in the face of sharply higher prices points to a recovery in economic growth in the current April-June quarter. The economy contracted at an annual rate of 1.5% in the first quarter, mostly due to an increase in the trade deficit. But analysts now expect that, on an annual basis, it will grow by as much as 3% in the current quarter.

Americans have been able to keep spending, despite rising inflationDue to rising wages, a stockpile of savings has accumulated during the pandemic and a rebound in the use of credit cards. Economists say these factors could boost spending and support the economy for most of this year.

Friday’s report showed that income rose 0.4% from March to April, slightly faster than inflation. However, high inflation forces consumers, on average, to save less. The savings rate fell to 4.4% last month, the lowest level since 2008. Overall, Americans have accumulated an additional $2.5 trillion in savings since the pandemic, and economists estimate that that pile is only slowly eroding.

Friday’s report showed that on a monthly basis, prices rose 0.2% from March to April, down from a 0.9% increase from February to March. The increase in April was the smallest since November 2020.

Excluding the volatile food and energy categories, so-called core prices rose 0.3% from March to April, matching the previous month’s rise. Core prices are up 4.9% from the previous year, the first drop since October 2020.

However, inflation remains painfully high, and it places a particularly heavy burden on low-income families, many of whom are black or Hispanic. The increasing demand for furniture, appliances, and other goods, along with the supply chain, started driving prices up about a year ago.

Consumers have shifted some of their spending from goods to services, such as the prices of airline tickets and entertainment tickets. This trend may help cool inflation in the coming months, although the amount of inflation is not clear.

Commodity prices, which were the main driver of inflation last year, fell 0.2% from March to April after jumping the previous month. Used car prices fell 2.3% in April, although they are still significantly more expensive than they were a year ago. The cost of clothing, appliances, and computers has also fallen.

Retailers such as Target have reported a rise in stocks Televisions, patio furniture, and other home goods as consumers shifted their spending more toward travel and merchandise-related services such as luggage and restaurant gift cards.

These stores will likely offer discounts to clear inventory in the coming months. Car manufacturers are ramping up production as some supply chains speed up and they are able to hire more workers. Both trends can continue to reduce the cost of manufactured items.

However, the cost of services such as restaurant meals, airline tickets and hotel rooms is still on the rise, offsetting much of the convenience of cheap goods. And higher gas and food prices, exacerbated by Russia’s invasion of Ukraine, will keep inflation measures painfully high at least in the summer. The average price for a gallon of gas nationwide was $4.60, according to the American Automobile Association. A year ago, it was $3.04.

Chairman Jerome Powell pledged to keep raising the Fed’s key short-term interest rate until inflation drops in a clear and convincing manner. These interest rate increases have raised concerns that the Fed, in its quest to slow borrowing and spending, could push the economy into a recession.. This concern has caused sharp declines in stock prices in the past two months, despite a rebound in markets this week.

Powell indicated that the Fed will likely raise its benchmark rate by half a point in both June and July – twice the size of a normal rate increase.

Most economists have predicted that inflation, according to the Fed’s preferred metric, will remain at around 4% or higher by the end of this year. Rate increases at this level will likely mean that the Fed will continue to raise interest rates to bring inflation back to its 2% target.

A well-known measure of inflation, the Consumer Price Index, also recorded earlier this month a slowdown in price gains. The consumer price index jumped 8.3% in April compared to the previous yeardown from a 40-year high in March of 8.5%.

The measure of inflation released Friday, called the PCE Price Index, differs in many ways from the CPI which helps explain why it shows a lower level of inflation than the CPI.

PCE is a broader measure of inflation that includes payments made on behalf of consumers, such as for medical services covered by insurance or government programs. The CPI only covers out-of-pocket costs, which have risen further in recent years. Rents, which are rising steadily, are given less weight in PCE than in CPI.

The PCE price index also seeks to account for changes in how people shop when inflation jumps. As a result, it can pick up, for example, when consumers switch from expensive national brands to cheap ones in stores.