April’s Consumer Pricing Index (CPI) was announced midweek up 0.4 percent from March, slightly below market expectations. The monthly increase cooled the annual rate of inflation down to 4.9 percent.

Hourly earnings, adjusted for inflation, rose just 0.1 percent, still down 0.5 percent YOY. This illustrates the insidious impact of inflation and the erosion of consumer purchasing power as prices rise while real wages fail to keep up. Excluding food and energy prices, core CPI rose 5.5 percent on an annualized basis. Still, after peaking in June of last year near 9 percent, CPI has been falling steadily in a gradually tightening credit market.

The April 2023 CPI is the first monthly result showing inflation growing more slowly than the Federal funds rates following May’s 25-point hike. The Fed made the move, raising overnight lending rates from 5.00 percent to 5.25 percent, despite the recent regional banking crisis. Credit markets have tightened, as has access to affordable credit, placing a strain on the banking sector’s liquidity.

Higher interest rates will encourage more investors to save and secure deposits while curbing frivolous spending as access to easy money tightens. Perhaps, with CPI continuing to fall, the Fed can breathe a little easier and pause its aggressive tightening campaign.

The full version of this commentary appeared on our IQ platform May 10, 2023. Further information concerning inflation and other factors influencing the economy is available to IQ subscribers. Learn more about becoming a subscriber.


Source: 123rf.com
Posted by: Information Services
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