Inflation slows in the US, but remains high

The rise in US consumer prices slowed sharply in April as gasoline prices retreated from record levels, suggesting inflation has likely peaked.

However, rising prices are likely to remain strong for some time and cause the Fed (Federal Reserve) to continue to try to cool demand.

The consumer price index rose 0.3% last month, the lowest rate since last August, the Labor Department said on Wednesday. This contrasted sharply with the 1.2% increase recorded in March, which was the biggest since September 2005.

But the slowdown is likely temporary. Gasoline prices, which accounted for most of the pullback in the monthly inflation rate, are rising again and were around $4,161 a gallon earlier this week after having gone below $4,161 a gallon earlier this week. 4 (R$ 20.5) in April, according to the Energy Information Administration.

The Ukrainian War is the main catalyst for the rise in gasoline prices, and it has also pushed up global prices for goods.

The Fed last week raised interest rates by 0.5 percentage point, the highest in 22 years, and said it would begin to reduce its bond portfolio next month. The US central bank began raising interest rates in March.

In the 12 months to April, consumer prices rose 8.3%. While this was the first slowdown in the annual index since last August, it marked the seventh straight month of increases of more than 6%. The consumer price index rose 8.5% in March on that basis, the biggest annual rise since December 1981.

Economists consulted by Reuters had forecast an increase of 0.2% in April and of 8.1% in relation to the same period of the previous year.

Monthly inflation will likely accelerate. Annual readings are expected to decline further as last year’s large increases slip out of the calculation but remain above the Fed’s 2% target at least through 2023.

China’s zero-tolerance policy against Covid-19 is likely to put more strain on global supply chains, pushing up prices for goods. Prices for services such as air travel and hotel accommodation are also expected to keep inflation high amid both strong demand during the summer and a shortage of workers.