The Consumer Price Index soared 0.8% in April to match the biggest monthly increase since 2009, the Commerce Department reports.
The rate of inflation over the past year jumped to 4.2% from 2.6% in the prior month — the highest level since 2008. The pace of inflation has surged (after years of languishing at unusually low levels), largely due to the rapid reopening of our economy. The rate of inflation is the highest level in nearly 13 years, signaling greater stress on our economy as businesses grapple with supply shortages (that are at least temporarily raising the cost of many goods and services).
Businesses can’t keep up with demand, a problem exacerbated by ongoing bottlenecks in the global trading system tied to the pandemic. Computer chips are especially in short supply and that’s held up production of new autos and other manufactured goods.
Americans are also rushing to dine out, travel, and go far f-a-r away for vacations, activities they shied away from during the pandemic. That’s also driving up prices at popular vacation resorts and other venues where people congregate.
Prices for a broad swath of goods and services rose by record amounts in April: used cars and trucks, tires, computers, televisions, furniture, toys, computers and airline fares, among other things. The cost of some of these goods and services (such as plane tickets), which fell sharply during the pandemic, are now recovering lost ground with a vengeance. Likewise, prices for other products like used vehicles are setting new all-time highs. The cost of used cars and trucks soared 21% over the past year, the CPI shows.
The cost of food is also rising twice as fast as it was before the pandemic. Senior Federal Reserve officials, who are supposed to protect the U.S. from high inflation, insist the increase is temporary. They contend inflation will subside by next year once the pandemic fades, supply shortages are resolved, most people go back to work, and the global economy has largely recovered. The U.S. central bank is betting inflation will fade by next year and fall back toward its long-term goal of 2% (where the rate of inflation it has hovered for most of the past decade). But investors are less sure. Regardless, our economy will likely be fine if the Fed is right. But if the central bank gets it wrong, all bets are off. The Fed could be forced to raise interest rates sooner than it wants and potentially choke off a budding economic recovery.
