US: Inflation remained hot in April – UOB

Senior Economist at UOB Group Alvin Liew comments on the publication of the US inflation figures for the month of April.

Key Takeaways

“Even as US CPI inflation came off its Mar highs, it was still at an elevated print of 0.3% m/m, 8.3% y/y in Apr (from 1.2% m/m, 8.5% y/y in Mar). Core CPI (which excludes food and energy) inflation was also off its highs, coming in at 6.2% y/y for Apr, from 6.5% y/y in Mar but of greater concern was that on a sequential basis, core inflation rose by a faster 0.6% m/m (up from 0.3% m/m in Mar), and above Bloomberg estimate of 0.4%.”

“The month of Apr continued to show broad based pressures just like in the last few months of 2021 and Jan 2022, but notably, while most of the main categories within the CPI basket saw m/m price increases, there was an increase to three main categories that registered m/m declines in Apr (transport, apparel, education and communications). The biggest contributions of the 0.3% m/m increase for headline CPI came from shelter, food, airline fares, and new vehicles, offsetting the declines in gasoline prices, used cars and trucks and apparel. As for the larger 0.6% m/m increase for the core CPI, in addition to the increases from shelter, airline fares, and new vehicles, indexes for medical care, recreation, and household furnishings and operations also added to the m/m increase.”

“Goods inflation dipped sequentially for the first time since Nov 2020, coming in at -0.3% m/m, 13% y/y in Apr but the bigger worry is services inflation – a far bigger and thus more important component of CPI at 60.2% weight – which continued to accelerate, increasing by 0.8% m/m, 5.4% y/y (from 0.7% m/m, 5.1% y/y in Mar). This is the fastest m/m increase since Jan 2001, while the y/y jump is the largest since May 1991 (5.44% y/y). The accelerating services inflation will be an increasing concern for the Federal Reserve (Fed) as it is a reflection of US wage pressures, amplifying the rising risks of a wage-price inflation spiral.”

“Our key worry from the latest Apr CPI report is the accelerating services inflation which is clearly flashing warnings about the wage-price spiral. We expect inflation to head higher in 2Q before some easing in 2H, and we will further raise our headline CPI inflation forecast to average 6.5% (from 6% previously) while the core CPI inflation to average 6% (from 5.5%) for 2022. Subsequently, we still expect both headline and core inflation to ease in 2023 to average 2.5%.”