Consumer Prices Jumped in April, Climbing Faster Than Expected

The increase in the Consumer Price Index was well above forecasts. A top Fed official struck a watchful tone but said ‘it’s just one data point.’

Central bankers have said price pressures are likely to be temporary.Credit…Andrew Spear for The New York Times

Consumer prices leapt higher in April, data released on Wednesday showed, a much-faster-than-expected jump that could resonate on Wall Street as investors try to determine if inflation could alter Federal Reserve policy.

The Consumer Price Index climbed 4.2 percent from a year earlier, the Labor Department said, the fastest pace since 2008. From March to April, prices increased 0.8 percent. Economists had expected the C.P.I. to rise 3.6 percent over the year, and 0.2 percent from the month before, based on the median forecast in a Bloomberg survey.

The core index, which strips out volatile food and energy, rose 0.9 percent in April from March — its biggest monthly increase since April 1982. It climbed 3 percent over 12 months.

Prices are shooting higher as inflation figures lap extremely weak readings from 2020 and as supply chain disruptions begin to bite and demand climbs.The monthly increase in April was broad-based, as prices for used cars accelerated and the cost of air travel, shelter and home furniture also increased.

But central bankers have said they think the jump will be short-lived, and have made it clear that they plan to look past a temporary increase when setting policy. The technical quirks at work in April will last only a few months, officials often point out, and while it is less clear when shortages will be resolved, they are expected to eventually work their way through the system as businesses ramp up production to meet demand.

The demand surge that seemed to drive the monthly gain in April — the one pushing travel costs higher, for instance — struck some economists as being exactly the kind of reopening bump that the Fed has said it can tolerate.

“It shows the services side of the economy is reawakening,” said Sarah House, a senior economist at Wells Fargo. “This is largely what the Fed expected, it’s just coming faster and with larger force.”

One Reason Inflation Is Primed to Rise

Some of April’s jump can be explained through what’s known as base effects — prices fell significantly last spring, so the increase now from the year prior is larger.

Richard H. Clarida, the Fed’s vice chair, spoke shortly after the release, saying that he was “surprised” by the pace of increase, and that it might take time for supply to catch up with demand as the economy reopens.

“We’re outcome based, this is one data point,” Mr. Clarida cautioned. But he added that “over time we will be taking signal from this data, and it’s going to be very important that any pressures to inflation that arise be transitory.”

The Fed defines its inflation target using a separate measure, the Personal Consumption Expenditure index, but that metric relies on data from the C.P.I. and is also expected to move above the central bank’s goal. Fed officials aim for 2 percent annual inflation on average.

The concern on Wall Street has been that the fast recovering economy, huge stimulus efforts from Washington and pent-up demand from consumers could mean that price gains are more pronounced or sustained than the Fed can accept.

A key part of the central bank’s role is to keep price increases contained, so a steep acceleration in prices that is expected to last might prompt it to dial back policies that keep money cheap and credit flowing. Reducing the support would probably cause stock prices to sink.

On Wednesday, yields on government bonds rose in the minutes after the consumer price data was released and stocks declined for the third consecutive day.

Central bankers have been clear that they would react if, contrary to their expectations, signs of a persistent price takeoff emerged. But they have also said they want to avoid withdrawing support from the economy early, which could leave the labor market not completely healed and put longer-run inflation at risk of returning to uncomfortably low levels, where they have been mired for much of the past decade.

But Mr. Clarida said after the report that if there are signs that inflation is going to jump in a lasting way, “we would use our tools to bring inflation to our 2 percent longer-run goal.”

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