There are encouraging and concerning signals in the latest batch of economic data released by the government this week.
First the good news: despite an uptick on a month-to-month basis in April, annual inflation at the wholesale level fell to its lowest since January 2021. The producer price index (PPI) for final demand increased 2.3 percent on a year-over-year basis (y/y), according to the Bureau of Labor Statistics (BLS). That was down from a 2.7 percent y/y increase in March, a 6.4 percent increase in December 2022, and well below the pandemic-era peak of 11.7 percent in March 2022.
Although inflation in business-to-business transactions captured by the PPI has calmed as supply chain snarls have eased and the cumulative impact of Federal Reserve interest rate increases has taken hold, inflation at the consumer level is proving more persistent. Consumer inflation did cool last month according to BLS data, though you’d almost need a magnifying glass to spot the improvement.
Year-over-year increases in both the overall CPI and the core CPI, which excludes food and energy, decreased a scant 0.1 percentage points in April. The overall CPI increased 4.9 percent y/y in April compared to 5 percent y/y in March, while core CPI growth slowed to 5.5 percent y/y in April from 5.6 percent y/y in March. Both indices were up 0.4 percent on a monthly basis in April. These data take the inflation narrative of much of the last year—moving slowly in the right direction—to an extreme. The slow-motion improvement is particularly apparent and concerning when looking at the core CPI, the closer of the two to the Federal Reserve’s targeted price gauge. Indeed, the core index sits only 0.2 percentage points below its year-end 2022 level.
Separately, results from the Federal Reserve Bank of New York’s latest Survey of Consumer Expectations, released on May 8, show a tempering of near-term inflation expectations among respondents but a small increase in longer-term expectations. The Fed panel’s median one-year-ahead inflation expectation fell to 4.4 percent in April from 4.7 percent in March. The median three-year-ahead expectation in April was for 2.9 percent inflation, up from 2.8 percent the in previous month, while the median five-year-ahead expectation in April was for 2.6 percent inflation, up from 2.5 percent previously.
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