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U.S. inflation rate cools to 4.9% but consumer prices still stubbornly high

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US consumer prices rose again in April and underlying inflation indicators remained high, suggesting higher costs could continue in the coming months.

Prices rose 0.4% from March to April, up from 0.1% from February to March, the government said on Wednesday. Compared to the same month of the previous year, it increased by 4.9%, slightly slowing down from the rate of increase in March compared to the same month of the previous year.

The country’s inflation rate has fallen steadily since its peak of 9.1% last June, but is still well above the Federal Reserve’s 2% target rate.

The Fed pays particular attention to so-called core prices, which exclude volatile food and energy costs, and are seen as a better indicator of long-term inflation trends.

Core prices rose 0.4% in March-April and were the same as February-March. It was the fifth consecutive month that core prices rose by 0.4% or more. That pace of growth is well above the Fed’s 2% target.

Compared to a year ago, core prices were up 5.5%, just below March’s annual gain of 5.6%.

Economists say the slowdown in overall U.S. inflation since last summer may prove to be a relatively easy stage in the U.S.’s effort to combat inflation.

Supply chain disruptions that have left many grocery store shelves empty and delayed deliveries of furniture, cars, electronics and many other goods have been resolved. After falling above $5 a gallon nationwide after Russia’s invasion of Ukraine, gasoline prices rose again in April after OPEC agreed to cut production.

Service prices are still rising

But unlike the price of goods, the cost of services, from restaurant meals to car insurance, dental care to education, is still skyrocketing.

The main reason is that companies have had to raise wages in these industries to find and retain workers. Fed officials say that while the surge in wages is good for workers, it is also contributing to rising costs in the service industry, as labor accounts for a significant portion of the cost of the service industry. Says.

After raising rates last week for the 10th time in a row, the Fed may pause rate hikes as it may take time to assess how higher borrowing costs are affecting the economy. suggested there is. However, it could be months before the full impact of the rate hike on the economy becomes clear.

For more than two years, high inflation has been a huge burden on American consumers, a threat to the economy, and a frustrating challenge for the Fed. Since March 2022, the central bank has raised key interest rates by a whopping 5 percentage points.

Besides making borrowing much more expensive for consumers and businesses, those higher interest rates are likely contributing to the collapse of three major banks in the past two months, which is likely to lead to a pullback in bank lending. As a result, the economy could get even worse.

Even more ominously, the government’s debt ceiling could be breached by early June, with Congressional Republicans refusing to raise the ceiling unless President Joe Biden and Congressional Democrats agree on significant spending cuts. . If the debt ceiling is not raised by the deadline, the country could default on its debts and trigger a global economic crisis.

When Fed policymakers met last week, they agreed to raise the benchmark rate by a quarter of a percentage point to a 16-year high of about 5.1%.

This means that central bank rates have exceeded the official inflation rate for the first time since the pandemic began.

Most economists believe that rate hikes will have the intended effect over time. But many also fear that the rate hikes will weaken the economy so much that it could plunge into recession later this year.

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