US Consumer Prices Post Largest Gain Since 2009 as Inflation Ramps Up

Reuters
By Reuters
May 12, 2021Business News
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US Consumer Prices Post Largest Gain Since 2009 as Inflation Ramps Up
A shopper browses toys at a Target store in King of Prussia, Pa., on Nov. 20, 2020. (Mark Makela/Reuters)

U.S. consumer prices increased by the most in nearly 12 years in April, as fiscal stimulus and booming demand pushed against supply constraints, which could add fuel to financial market fears of a lengthy period of higher inflation.

The report from the Labor Department on Wednesday also showed a strong buildup of underlying price pressures, extending a stocks selloff on Wall Street.

The consumer price index jumped 0.8 percent last month, the largest gain since June 2009. The CPI rose 0.6 percent in March. A 10.0 percent surge in prices of used cars and trucks, the most since the series started in 1953, accounted for over a third of the increase in the CPI last month. That followed a 0.5 percent rise in March. Motor vehicle production has been hampered by a global semiconductor chip shortage, boosting demand for used automobiles.

Food prices increased 0.4 percent, lifted by rises in the cost of fruits and vegetables, dairy products, meats, fish and eggs. Households also paid more to dine out. But gasoline prices fell 1.4 percent after accelerating 9.1 percent in March.

A sharp rebound is likely after hackers shut down the Colonial Pipeline on Friday, leaving gas stations from Florida to Virginia running dry and prices at the pump surging this week.

Economists polled by Reuters had forecast the CPI would climb 0.2 percent. In the 12 months through April, the CPI shot up 4.2 percent. That was the largest gain since September 2008 and followed a 2.6 percent increase in March. The jump mostly reflected the dropping of last spring’s weak readings from the calculation.

Those so-called base effects are expected to push annual inflation even higher in the months ahead.

Stocks on Wall Street fell, building on the previous session’s losses, as investors worried that surging inflation could force the Fed to raise interest rates sooner than expected. The dollar strengthened against a basket of currencies. U.S. Treasury prices were lower.

“At the very least, this report demands extra work from the Fed to assuage markets it is standing its ground and why,” said Chris Low, chief economist at FHN Financial in New York.

Economists are keeping an eye on fairly high inflation expectations, which some say could become a self-fulfilling prophecy. Excluding the volatile food and energy components, the CPI soared 0.9 percent last month, the largest gain since April 1982. The so-called core CPI rose 0.3 percent in March.

It was boosted by a 10.2 percent surge in prices of airline tickets as well as an 8.8 percent jump in the cost of rooms in hotels and motels. The cost of renting a car soared 16.2 percent. Rental companies offloaded their fleets at the height of the pandemic and the semiconductor shortage is making it harder to restock.

Further increases are likely as these tourism categories remain below their pre-pandemic levels. Prices for new motor vehicles increased 0.5 percent. Consumers also paid more for recreation, motor vehicle insurance and household furnishings. But healthcare costs edged up 0.1 percent for a second straight month.

In the 12 months through April, the core CPI jumped 3.0 percent, also boosted by base effects. That was the biggest increase since January 1996 and followed a 1.6 percent advance in March.

“Put together with potentially higher wage inflation, higher inflation may be stickier than the Fed expects,” said David Kelly, chief global strategist at JPMorgan Asset Management in New York.

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