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US inflation fell less than expected to 8.3% in April

CPI moderated for the first time in 8 months as Fed readies for more aggressive tightening

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US consumer price growth stabilized in April at its highest level in four decades, despite the first moderation in the annual pace in eight months, underscoring the urgent need to push the Federal Reserve to end inflation.

The consumer price index rose at an annual rate of 8.3 percent last month, a step less than the 8.5 percent increase recorded in March but slightly above economists’ expectations of 8,1 percent.

Prices rose another 0.3 percent from the previous month, slower than the 1.2 percent rise in March that was driven by higher energy and food costs linked to the invasion of Ukraine by part of Russia.

However, excluding volatile items such as food and energy, the monthly increase in core CPI increased at a faster pace than the previous month, at 0.6 percent compared to 0.3 percent in March. On an annual basis, that equates to an increase of 6.2 percent.

The data, released by the Bureau of Labor Statistics, may mark the beginning of a spike in rising inflation from the era of the coronavirus pandemic caused by hot consumer demand coupled with severe bottlenecks in the supply chain.

In general, economists expect the pace of consumer price growth to moderate beyond these levels as the direct effects of the war in Ukraine abate. The headline annual inflation reading should also start to decline in the coming months as it begins to compare with the very high levels seen last year.

However, evidence that price pressures are no longer an exclusive phenomenon of the sectors most affected by the disruptions associated with the pandemic, but rather a widespread trend affecting all sectors, has raised concerns that inflation is becoming an ongoing problem.

US President Joe Biden on Tuesday stressed that fighting inflation is his administration’s “biggest economic challenge” and expressed support for the Federal Reserve’s efforts to control inflation.

The Federal Reserve stepped up its efforts to contain price pressures, implementing its first half-point interest rate increase in more than two decades this month. More of these increases are expected in June and July, and possibly even September, when the federal funds rate is expected to reach 2.7 percent by the end of the year.

The Federal Reserve will also begin reducing its $9 trillion balance sheet in June, the second of two levers the Fed has used to cool the economy.

The main question for investors is whether the US central bank can bring down inflation without causing a recession. New York Federal Reserve Chairman John Williams said this week that the challenge of engineering a smooth landing would be difficult but “not insurmountable.”

Financial markets have swung in recent days, as stock markets post huge losses and US borrowing costs soar. The 10-year Treasury yield is now hovering around 3 per cent, nearly double the 1.5 per cent level at the start of the year.

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