Inflation Rose 4.9% Annually and 0.4% Month Over Month in April

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Higher levels of inflation remain a problem. Read on to learn more. 

What happened

In April, the Consumer Price Index (CPI), which measures changes in the cost of consumer goods and services, rose 4.9% on an annual level. Compared to March, the CPI rose 0.4%. Higher food and energy costs were big drivers of April’s increase.

So what

In June of 2022, annual inflation, as measured by the CPI, peaked at 9.1% and has been gradually declining since. In April, the cost of gasoline and fuel oil dropped substantially, as did the cost of used vehicles. But most consumer expense categories saw a year-over-year increase. And that’s not likely to sit well with the Federal Reserve, which has been trying to cool inflation for more than a year.

“Inflation is still sticky: I don’t think that the Fed is going to look at this and cut rates, or heave an especially big sigh of relief,” said Priya Misra, head of global rates research at TD Securities.

Now what

The Federal Reserve has made it clear that it wants to see inflation creep back down to the 2% mark. It’s that level of inflation, the Fed feels, that’s most likely to lend to economic stability.

To combat rampant inflation, the Fed has been implementing interest rate hikes for more than a year. And so far, it’s raised rates by 0.25% three times in 2023. But as painful as inflation has been for consumers, interest rate hikes have been equally problematic.

The Federal Reserve does not set consumer borrowing rates directly. Rather, it oversees the federal funds rate, which is what banks charge each other for short-term borrowing. But when the Fed raises its benchmark interest rate, the cost of borrowing tends to increase, making it more expensive to sign everything from an auto loan to a personal loan.

Given April’s inflation numbers, the Fed is unlikely to back down on interest rate hikes, so it’s likely the central bank will raise rates again the next time it meets. As such, consumers looking to borrow could face even higher costs. And consumers with existing variable-interest debt could see their credit card and HELOC payments increase.

Now the one silver lining is that rate hikes tend to lead to higher interest rates for savings accounts and CDs. But many consumers don’t have money to save due to inflation. If anything, they remain reliant on credit to cope with higher living costs. So the fact that borrowing has the potential to get even more expensive is not a good thing at all.

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