A Swift Price‑Level Adjustment, Not an Inflation Spike: April U.S. CPI

The U.S. core consumer price index (CPI) significantly outpaced expectations in April, driven by a massive jump in prices for used cars and COVID-19-sensitive travel services. Other consumer goods prices, which saw soaring demand in the March retail sales report, also saw firm price increases. This was enough to help year-over-year (y/y) core CPI jump to 3.0%, the strongest print since the mid-1990s.

April CPI data meaningfully surprised on the upside, but we continue to view this as a price-level adjustment. Price increases were largely concentrated in sectors supported by fiscal stimulus-driven demand and semiconductor shortages, which hindered auto production and created supply bottlenecks. As a result, April CPI data suggests that price increases were more front-loaded than anticipated, and we continue to expect inflation to normalize through the second half of this year. Elsewhere, underlying price trends remained moderate in April, with measures of rental inflation little changed relative to the recent pace.

The CPI report will also make the U.S. Fed’s job more challenging, as some market participants question their view that price pressures will ultimately prove transitory. Since we share the Fed’s view that the inflationary pressures seen in April will ultimately prove temporary, the report does not change our expectations that rate hikes are still likely a question for 2023.

Under the hood of April CPI: Used cars, COVID-sensitive travel services, and retail goods
Three factors came together in a perfect storm that led April CPI inflation to meaningfully beat expectations – surging used car prices due to semiconductor shortages that disrupted supply, normalizing travel service prices as the economy continued to reopen, and firming core goods prices due to stimulus-boosted demand.