• Annual CPI expected to jump 3.6% in April .
  • April 2020 had the lowest consumer price index of the pandemic.
  • US Gasoline prices are up 43% in six months.
  • Federal Reserve foresees no policy changes with inflation.

 American consumer prices are set to rise by the most in decade as the base effect from last year’s pandemic collapse reaches its height.  

The Consumer Price Index (CPI) is expected to climb 0.2% in April, according to the consensus forecast from the Reuters survey of economists. In March CPI rose 0.6%. Annual prices are projected to jump 3.6% following the 2.6% increase in March.

Core prices are predicted to be unchanged at 0.3% on the month but to rise 2.3% annually in April from 1.6% in March

Consumer Price Index

The Consumer Price Index tracks the change in cost for a basket of goods over time with a reference to a base year as 100. 

Last year's lockdown in March and April crushed retailers who were forced to sell goods at discounts or not at all as most consumers limited their purchases to essential items and services. 

As the shutdown took hold last spring the index dropped from 258.678 in February to 258.115 in March to the low of 256.389 in April 2020. 

Consumer Price Index



Prices began to recover in May, and by July’s 259.101 score the index was above February's pre-lockdown level. 

Since last July price increases have averaged 0.3% a month. By March those cumulative gains had produced an index level of 264.877, or 2.62% above the 258.115 last March. 

The same comparison with the April 2020 index is projected to produce a 3.3% gain this year.



Consumer prices base effect vs demand shortage

The quickly reviving US economy and government pandemic largesse have invigorated consumption. Retail Sales averaged 4.8% for the first quarter, which, except for the May, June and July rebound from the prior collapse, was the strongest quarter for sales in two decades. 

The rebound has exposed numerous shortages in goods and services, due to backorders, and scare components and materials. Prices have jumped for some goods and more increases are likely as the economy fully opens and normal life resumes. 

In addition, energy costs, which factor into almost all consumer goods, have risen sharply since the presidential election last November.  

A barrel of West Texas Intermediate (WTI), the North American pricing standard, has climbed 79.7% since it opened at $35.90 on November 2 the day before the vote. 



Gasoline prices have gone up in tandem. From a nationwide average of $2.02 a gallon on November 2, prices have climbed 43% to $2.86 on May 10. The gains are a compound of rising demand as the pandemic has waned and the Biden administration’s energy policy, which has eliminated all new oil production leases on federal land.  

Federal Reserve inflation policy

The Federal Reserve anticipated the steep increases in the CPI this year when the governors adopted an inflation-averaging policy last September. Once economic recovery began the jump in CPI was a mathematical certainty as long as prices resumed a normal course. 

This new guideline permits inflation to run above target for a long enough and unspecified period to generate a 2% overall average. 

By this change the Fed has disabled its reaction function. In the past, inflation above 2% for more than a month or two, would have sent credit markets speculating about a rate increase. 

The purpose of the new stipulation was to give the central bank much greater freedom to maintain accommodative rates, regardless of price variation. 


Fed Chair Jerome Powell and other officials have said repeatedly that the current spate of price increases are a limited phenomenon, attributable largely to the base effect from last year's lockdown. In that they are correct. The March and April CPI jumps are transitory. These increases in CPI will not and should not tempt the governors into preventative rate measures. 

But these are not the only factors operating on consumer prices. Demand is increasing for many consumer goods. For some, bicycles for instance, production delays and a shortage of parts are keeping supply limited.  

Employers are beginning to offer higher wages because in many industries they cannot find enough workers.

This combination of rising retail demand, scarcity for some consumer goods and incipient wage gains may, if they continue, raise the base rate of consumer inflation expectations. 

The Fed insists that all three problems are temporary, the products of manufacturing and labor shortages that will ease as the economy fully recovers. 

For markets, whether the Fed’s inflation analysis proves accurate is, for the moment, irrelevant.  There is no CPI result that will prompt speculation on interest rates


Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content

Recommended Content

Editors’ Picks

EUR/USD holds steady below 1.0800 ahead of EU data Premium

EUR/USD holds steady below 1.0800 ahead of EU data

EUR/USD is holding steady just shy of the 1.0800 mark in the early European morning. The US Dollar is consolidating the upside amid a cautious market tone, as investors assess Friday's US NFP blowout and hawkish Fed expectations. Eurozone data coming up next. 


GBP/USD attempts to cross 1.2050, downside looks likely amid US-China tensions

GBP/USD attempts to cross 1.2050, downside looks likely amid US-China tensions

The GBP/USD pair has attempted to extend its rebound move above the critical resistance of 1.2050 in the Tokyo session. The Cable gauged an intermediate cushion around 1.2000 amid subdued performance by the US Dollar Index (DXY).


Gold rebounds but not out of the woods yet Premium

Gold rebounds but not out of the woods yet

Gold price is making a tepid recovery attempt toward the $1,900 level at the start of the week on Monday. Gold buyers a breathing a sigh of relief after two back-to-back days of extreme sell-off.

Gold News

Top 3 Price Prediction Bitcoin, Ethereum, Ripple: Is this the beginning of the end for bulls?

Top 3 Price Prediction Bitcoin, Ethereum, Ripple: Is this the beginning of the end for bulls?

Bitcoin (BTC) price is the glue that is holding this 2023 bull run intact for Ethereum (ETH), Ripple (XRP) and other altcoins. But chinks in BTC bulls’ armor are beginning to show, therefore, investors need to be cautious of a sudden reversal. 

Read more

The Week Ahead - RBA rate meeting, UK Q4 GDP and earnings

The Week Ahead - RBA rate meeting, UK Q4 GDP and earnings

Back in November the RBA hiked rates by a less than expected 25bps, amidst concern about the effects recent rate hikes were having on the Australian economy and ergo the housing market. At the time Governor Philip Lowe said that the RBA wanted to slow the pace.

Read more