Inflation In US Drops Slightly But Not Enough; Still At 40-Year High

Inflation in the US has dropped, but it still remains at a four-decade high, defying exceptions of a bigger drop.

• In April, consumer prices grew by 8.3 per cent annually.

• This is lower from the 8.5 per cent spike in March.

• This is the first time that the rate of inflation has dropped in eight months.

The moderation in overall inflation was driven by a drop in energy costs, which entails a 6.1 per cent drop in petrol prices.

• According to analysts, inflation is still uncomfortably high and they believe that it will be hard to tame.

Why will it be hard to tame inflation?

• Core CPI (CPI without the volatile gas and food prices) spiked from March to April.

• Inflation in goods might be easing but surging prices in services (medical, rent, recreation) is becoming a concern. This is problematic as inflation in services cannot be solved by ameliorating supply chain disruptions.

• Rent rose by 0.5 per cent for the third month. Rent accounts for one third of the overall Consumer Price Index.

The Bottom Line: According to multiple reports, a record share of Americans hold the view that inflation is the number one concern.

• US President Biden blames external factors like the war in Europe and Covid-19. Republicans blame Biden's economic policies.

• Some believe that the Federal Reserve misreading the situation and not hiking interest rates earlier is the main factor.

• “At this point, I don’t care what the reasons are. Inflation is too high and my job is to get it down,” said Fed Governor Chris Waller.