As investors worry about inflation, consumer prices are set to jump. Don’t panic.
By Jeanna Smialek and Ella Koeze
Consumer prices are expected to jump sharply in April data that will be released on Wednesday, a move resulting mainly from a technical quirk — but one that investors will be watching carefully as they try to determine if inflation could alter Federal Reserve policy.
The Consumer Price Index probably climbed by 3.6 percent in the year through April, economists surveyed by Bloomberg expect. The increase in prices from March to April is expected to be more muted, at 0.2 percent. The Labor Department will release the figures at 8:30 a.m.
The annual jump would be the fastest increase since 2011, and a sign that prices are shooting higher as inflation figures lap extremely weak readings from 2020 and, to a lesser extent, as supply chain disruptions begin to bite and demand climbs.
Central bankers think the jump in prices will be short-lived, and have made it clear that they plan to look past a temporary increase when setting policy. The technical quirks at work in April will last only a few months, officials point out, and while it is less clear when shortages will be resolved, they are expected to eventually work their way through the system as businesses ramp up production to meet demand.
But the concern on Wall Street, and among some economists, is that the fast recovering economy, huge stimulus efforts from Washington and pent-up demand from consumers could mean that price gains are more pronounced or sustained than the Fed can tolerate.
Why Inflation Is Primed to Rise
April 2021 forecast: +3.6%
+3.0%
Percent change in Consumer Price
Index from a year ago
+2.0
+1.0
2019
2020
2021
Some of April’s expected jump can be explained
through what’s known as base effects — prices
fell significantly last spring, so the increase now
from the year prior is larger, even if prices are not
rising as dramatically.
2021 Consumer Price Index
265
260
2020
255
Jan
April
July
Oct.
April 2021 forecast: +3.6%
+3.0%
Percent change in Consumer Price
Index from a year ago
+2.0
+1.0
2019
2020
2021
Some of April’s expected jump can be explained through what’s known as base effects —
prices fell significantly last spring, so the increase now from the year prior is larger, even
if prices are not rising as dramatically.
2021 Consumer Price Index
265
260
2020
255
Jan
April
July
Oct.
Notes: C.P.I. of 100 is equal to prices in 1984. The April 2021 C.P.I. forecast is the median estimate in a Bloomberg survey of economists, as of the afternoon of May 11.
Sources: Bureau of Labor Statistics, Bloomberg
By Ella Koeze
A key part of the central bank’s role is to keep price increases contained, so a steep acceleration in prices that is expected to last might prompt it to dial back policies that keep money cheap and credit flowing. Reducing the support would probably cause stock prices to sink.
While the Fed defines its inflation target using a separate measure, the Personal Consumption Expenditure index, that metric relies on data from the C.P.I. and is also expected to move above the central bank’s goal. Fed officials aim for 2 percent annual inflation on average.
Central bankers have been clear that they would react if, contrary to their expectations, signs of a persistent price takeoff emerged. But they have also said they want to avoid withdrawing support from the economy early, which could leave the labor market incompletely healed and put longer-run inflation at risk of returning to uncomfortably low levels, where they have been mired for much of the past decade.
Lael Brainard, a Fed governor, said during a speech on Tuesday that “remaining patient through the transitory surge associated with reopening will help ensure” the economic momentum to “reach our goals.”
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