Inflation breakdown for April 2023 in one chart

Inflation breakdown for April 2023 in one chart

Inflation breakdown for April 2023 in one chart

A shopper in Greenville, New York, April 30, 2023.

Robert Nickelsberg | Getty Images News | Getty Images

Inflation in April notched its lowest reading in two years, as price pressures for consumers continue to moderate from multidecade highs and costs for household staples appear to be in retreat.

The consumer price index, a key barometer of inflation, increased 4.9% in April versus a year ago. That is the smallest annual reading since April 2021, the U.S. Bureau of Labor Statistics, or BLS, said Wednesday.

The index also fell from 5% in March, marking the 10th consecutive month of declines.

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“Increasingly, we can be confident that inflation is coming back in” to target, said Mark Zandi, chief economist of Moody’s Analytics.

Inflation measures how quickly prices are changing across the U.S. economy. The CPI measures anything from fruit and vegetable prices to those for a haircut or concert ticket.

Since the CPI reading was a positive number in April, it means consumers didn’t see prices falling, in a broad sense. But it shows the rate at which they’re rising has slowed significantly from the 9.1% peak in June 2022.

Policymakers aim to keep inflation at about 2% a year. It may take another year or so to reach that target, but “we’re definitively headed in that direction,” Zandi said.

Where consumers saw prices fall in April

Where consumers saw prices rise in April

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“It looks like inflation in the [shelter] category has peaked,” Andrew Hunter, senior U.S. economist at Capital Economics, said.

Overall, households are faring much better than they were months ago relative to inflation in staples such as food, energy and housing, according to Zandi.

“Gas prices are way down from where they were a year ago,” he said. “Food prices are no longer rising quickly.”

“And rents are now flat to down,” Zandi added. “Those are the key items in people’s budget and all of them feel pretty good at this point in time.”

Why inflation surged to multidecade highs

Consumer prices began rising rapidly in early 2021 as the U.S. economy started to reopen after the pandemic-related shutdown. Americans unleashed a flurry of pent-up demand for dining out, entertainment and vacations, aided by savings amassed from government relief.

Meanwhile, the rapid economic restart snarled global supply chains, a dynamic exacerbated by Russia’s invasion of Ukraine. In other words, supply couldn’t keep up with consumers’ willingness to spend.

Inflation, which increased in economies around the world during the Covid-19 pandemic era, was initially siloed in categories of physical goods such as used cars and trucks. But the dynamic has morphed.

Now, it’s largely being driven by the labor market, not a shortage of physical goods, economists said.

Increasingly, we can be confident that inflation is coming back in.

Mark Zandi

chief economist of Moody’s Analytics

As the economy reopened after the pandemic, businesses rushed to hire workers and job openings surged to record highs. That demand tilted the job market in favor of workers, who had ample opportunities. They saw wages grow at their fastest pace in decades as employers competed to hire them.

That strong wage growth has nudged employers, especially labor-intensive service businesses, to raise their prices, economists said.

But now, “the earlier extreme levels of excess demand for workers are easing,” Hunter said.

Those labor-market dynamics should continue to put downward pressure on overall inflation.

“The trend from here is definitely looking a lot better,” Hunter said. “I think we’re finally seeing clear signs of progress.”

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