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US Inflation Drops to Lowest Rate in Two Years

Consumer Price Index (CPI)

Consumers in the US have finally gotten a break. The prices of essentials like milk went down in April. So did the cost of new cars and airline tickets. This is due to the rate of US inflation dropping to its lowest in two years. It’s a good sign that the Federal Reserve’s move to hike interest rates to push prices down is working.

The Consumer Price Index (CPI) went up by 0.4% in April. Meanwhile, the inflation rate was up 4.9% in the year before April. But it decelerated from 5% in March. It was also the tenth consecutive month that price hikes have slowed down.

Finance experts believe the figure will remain at 5%. The most recent CPI reading seems to confirm it. The prices of goods are increasing at their slowest pace since April of 2021.

It’s interesting progress considering how inflation hammered the US. Rates peaked on June 2022 when it hit 9.1%. That was the highest rate the country has experienced since 1981.

Officials are not ready to call this development a victory though. It’s because the country is facing a problem once limited to certain sectors. For instance, manufactured goods. Now core inflation appears to be spreading.

Core inflation refers to the change in services and goods. It doesn’t include energy and food prices though, since this is always changing.

The problem is core inflation appears to have gone up by 5.5%. This was within the year to April. Prices for housing and petrol skyrocketed from March to April. The cost of some services also went up. For instance, consumers are now paying more to get a haircut or to have their pet checked.

The prices are now manageable but the total prices of goods are still rising faster than 2%. It’s the rate the Federal Reserve deems healthy.

Richard Carter of Quilter Cheviot said markets might believe the worst is over. But he cautioned that it remains above the target level. He also noted that core inflation remains a sticky issue.

The Federal Reserve opted to raise interest rates to control inflation. Rates went up 10 times since March of last year. It was the highest it’s ever been since 2007.

It was a harsh move designed to discourage people from borrowing. The idea was to slow down economic activity and lessen the pressures that were pushing prices up.

Federal Reserve chief Jerome Powell said they might have done enough. They might have wrestled inflation under their control. He also indicated that they might stop their rate hike program.

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