April Inflation Rate Drops Below 5%: Consumer Prices Rise by 4.9%

Consumer prices rose by 4.9% on an annual basis in April, according to data released by the Labor Department, marking the smallest year-over-year increase since May 2021 and coming in better than economists’ expectations for inflation to remain flat at 5%.[0] It also extended a monthslong slowdown and bolstered hopes that inflation will continue its return back to normal levels.[1] The U.S. consumer price index in April rose 4.9% on an annualized basis. In March, the number was recorded at 5%, and economists had predicted that it would remain unchanged at that level.[2] The consumer price index rose by 4.9% from a year earlier, the first sub-5% reading in two years, a Bureau of Labor Statistics report showed. The core consumer price index, which does not take into account food and energy, also experienced a slight decrease.[3] In what may be its last increase for the time being, the Fed boosted its benchmark interest rate for the 10th time in 14 months last week. The Federal Reserve has increased interest rates due to inflation in the US exceeding the target of 2%. In a consecutive manner, the Fed has increased interest rates for the 10th time.

The rising cost of housing was the biggest contributor to the increase in inflation last month, followed by increases in the price of gasoline and used cars, according to the BLS. The drops in the prices of airfares and food consumed outside the home offset those increases.[1] According to the BLS, housing, which constitutes the biggest portion of a typical household’s expenses, was the primary factor behind the inflation observed in April. In April, shelter expenses increased by 0.4% compared to the previous month, which was lower than the 0.6% rise in March.[4]

However, there is still a long way to go to stabilize the economy. In normal times, inflation rises by 2 percent every year, and the Fed has made clear it will not let up prematurely. The banking sector’s stress has become a concern for the stability of the entire financial system, which has complicated the plans.[5] Following the March collapses of Silicon Valley Bank and Signature Bank, lending to small businesses has decreased and regional bank stocks have suffered.[5] The Federal officials anticipate a deceleration in the economy, but they are uncertain about the extent of it.[5] A recent survey conducted by the Fed on bank lending practices on Monday revealed that lenders anticipate further tightening of loan standards in the coming days, particularly in the case of commercial real estate loans.[5]

Over the past two years, the United States has been grappling with high inflation, posing a challenge to both consumers and the economy. The Federal Reserve has responded by increasing its key interest rate at a rapid pace, reminiscent of the 1980s, in an effort to curb economic growth and tame rising prices.[6] However, there is still much progress to be made in stabilizing the economy. Under typical circumstances, inflation experiences an annual increase of 2 percent (as measured by the Fed’s preferred inflation indicator, different from the one disclosed by the BLS on Wednesday), and the Fed has expressed its determination to avoid prematurely easing its policies. The banking sector’s stress has become a concern for the stability of the entire financial system, which has complicated the plans.[5]

Despite the Federal Reserve’s all-out attempt to slow down the economy, the job market has impressively remained resilient.[5] In April, 253,000 job opportunities were generated by employers and the unemployment rate reached a low of 3.4 percent, matching the record set in May 1969. Despite the economic challenges, the job market persists with exceptional strength.[7] At a 54-year low, the unemployment rate is currently only 3.4%. 253,000 jobs were added by employers last month.[7]

Consumer prices in April saw a marginal decrease in inflation, with an annual increase of 4.9%. This is significant as it is the first time since June 2021 that the rate has fallen below the 5% mark. It’s also the slowest rise in two years, the Bureau of Labor Statistics said.[6]

0. “Inflation Unexpectedly Ticks Down—But Prices Still Rose 4.9% In April” Forbes, 10 May. 2023, https://www.forbes.com/sites/jonathanponciano/2023/05/10/inflation-unexpectedly-ticks-down-but-prices-still-rose-49-in-april/

1. “Price hikes cooled slightly in April, continuing monthslong slowdown” ABC News, 10 May. 2023, https://abcnews.go.com/Business/fresh-inflation-data-show-cooling-continued-april/story?id=99194165

2. “U.S. CPI rises by slower-than-expected 4.9% in April By Investing.com” Investing.com, 10 May. 2023, https://www.investing.com/news/economic-indicators/us-cpi-rises-by-slowerthanexpected-49-in-april-3078601

3. “US Core CPI April 2023 Moderates Slightly, Giving Fed Room to Pause Rate Hikes” Bloomberg, 10 May. 2023, https://www.bloomberg.com/news/articles/2023-05-10/us-core-cpi-moderates-slightly-giving-fed-some-room-to-pause

4. “Inflation jumped 0.4% in April as prices remain stubbornly high” Fox Business, 10 May. 2023, https://www.foxbusiness.com/economy/cpi-inflation-april-2023

5. “Inflation eased in April, even as bank crisis slows economy, CPI figures show” The Washington Post, 10 May. 2023, https://www.washingtonpost.com/business/2023/05/10/inflation-april-cpi-fed/

6. “CPI: Inflation rate falls below 5% for first time since June 2021” CBS News, 10 May. 2023, https://www.cbsnews.com/news/consumer-inflation-cpi-april-4-9/

7. “Inflation stays high in April as the economy faces challenging times” NPR, 10 May. 2023, https://www.npr.org/2023/05/10/1175029996/inflation-consumer-prices-recession-federal-reserve