Inflation Has a Long Way to Fall to Stop Being a Problem

Base prices, which do not include volatile prices for food and energy commodities, rose 6.2% in April from a year earlier.


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Inflation may have peaked, but that’s not the same as saying it’s under control.

The Labor Department on Wednesday reported that consumer prices rose 0.3% seasonally adjusted in April from a month earlier, bringing them up 8.3% from the previous year’s level. In March, they were up 8.5% year over year. Core prices, which exclude frequently volatile prices for food and energy commodities in an attempt to better reflect the underlying trend of inflation, rose 0.6 percent from March and rose 6 percent. 2% year-on-year in April. This compares to a 6.5% year-on-year increase in March. While inflation has eased slightly year-over-year, the monthly increase in core prices in particular is still larger than economists expected to see.

However, a month’s inflation reading, for better or worse, should generally be seen as a larger grain of salt than many investors typically choose. Some of the big drivers of fundamental price increases in April, such as airfares and new car prices, can drop erratically from month to month. Moreover, inflation in many commodities entangled in supply chain troubles has clearly begun to subside. Core commodity prices were up 9.7% year over year in April — a lot, but in February they were up 12.4%.

The most important thing may not be whether inflation eases in the coming months, but how much it does.

The Federal Reserve’s goal is to bring inflation to 2%, and while its preferred measure tends to be a bit cooler than that of the Labor Department, it’s a long way off. Furthermore, while the tightening campaign that started this year has had a clear impact on the stock market, beyond housing, it has yet to show much of a visible impact on the real economy. : Consumer demand remains strong and the job market strong. No matter what, it looks like the central bank will raise interest rates throughout this year and into the future.

What’s a little bit down on inflation would make investors think that the Fed’s view on interest rates could be a little lower than what they expect now, rather than a little higher. Until that happens, the stock market can be a dangerous place.

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