Consumer prices in the US rose by 0.4% from March to April and underlying inflation indicators remained high, indicating that higher costs could continue in the coming months. Similarly, core prices, which exclude volatile food and energy costs, also rose by 0.4% for the fifth straight month, well above the Federal Reserve’s 2% target. Domestic inflation has slowed since last June, but is still elevated at 4.9% year-on-year in April. Economists suggest that the overall slowdown in inflation since last summer could be reversed as supply chain disruptions are gradually resolved, and with the cost of services, such as dining and car insurance, still rising due to companies raising wages in these industries to retain workers.
After ten consecutive rate hikes, Federal Reserve officials have suggested they might pause rate increases to assess their impact on the economy. However, it could take several months to see the full effects. In the past two months, bank lending has receded, and the potential breach of the government’s debt ceiling by Republicans in Congress could lead to a default on debts and a global economic crisis. When the Fed policymakers last met, they raised the benchmark rate to a 16-year high of about 5.1% to contain spending, growth, and inflation. Nonetheless, many fear that the rate hikes will weaken the economy and potentially cause a recession.