April CPI: Price Inflation Looks Pretty Sticky

Great news on the inflation front!

At least if you believe the headlines.

For example, “Consumer Prices in April Rise at the Slowest Annual Rate in Two Years.”

But if you read about one inch below the headline, you’ll discover things aren’t so great. In fact, the actual data reveals price inflation is looking pretty sticky.

According to data released by the Bureau of Labor Statistics, April CPI rose by 4.9% on an annual basis. That was a tick lower than the 5% annual CPI increase reported in March and also lower than the projection for another 5% annual gain.

Looking at the monthly numbers, CPI was up by 0.4% over last month, representing a significant increase in prices. That compares to a 0.1% month-on-month increase in March, signaling that price inflation isn’t cooling at all.

In fact, looking at the CPI prints through the first four months of this year, the average is 0.35% which annualized to 4.2% on the year. This is more than double the Fed’s 2% target.

The core CPI numbers cast even more doubt on the notion that the Fed is winning the inflation fight.

Stripping out more volatile food and energy prices, core CPI was up 0.4%. Over the last 12 months, core CPI was up 5.5%, just a tick lower than in March.

More concerning is the fact that core CPI has held steady in recent months, rising by 0.4% in January, 0.5% in February, 0.4% in March, and by 0.4% again in April.

The mainstream’s new favorite inflation measure – supercore inflation, which strips out shelter prices along with food and energy, was up 0.4% on the month and up by 3.7% on an annual basis. These numbers were both up from 0.2% and 3.4%  respectively in March.

And again – I can’t emphasize this enough – you will notice that all of these numbers are well above the Fed’s 2% inflation target.

Keep in mind, inflation is worse than the government data suggest. This CPI uses a formula that understates the actual rise in prices. Based on the formula used in the 1970s, CPI is closer to double the official numbers.

Increases in the prices of shelter, gasoline and used vehicles pushed the overall CPI index higher. The prices of fuel oil, new vehicles and food at home cooled somewhat.

Despite the general gloomy inflation picture, the mainstream spun it as yet another positive sign that inflation is cooling. In a tweet, Peter Schiff said nobody should be excited about this CPI report.

No one should be excited about April #CPI rising just 4.9% YoY, verses expectations of a 5% gain. 4.9% is still well above the #Fed's 2% target and likely represents trough #inflation. Also, April's .4% rise in consumer prices is much hotter than the .1% rise the prior month.

— Peter Schiff (@PeterSchiff) May 10, 2023

In the past, gold has rallied on “positive” inflation news, but after the April CPI data came out, gold dipped. Schiff said it sold off because investors realized that the “good” news is actually bad.

Far more ‘improvement’ would be needed to get the Fed to officially pivot. But persistent inflation is actually very bullish for gold. When investors finally figure that out gold will soar.”

The Fed gave some indication that a pause might be in play at the May FOMC meeting. But Federal Reserve Chairman Jerome Powell tried to downplay a rate hike pause and slammed the door on the possibility of rate cuts this year. He emphasized that the Fed is now in a “data-dependent” mode and insisted that “a decision on a pause was not made today.”

We on the committee have a view that inflation is going to come down—not so quickly, it will take some time. In that world, if that forecast is broadly right, it would not be appropriate to cut rates.”

Regardless of what the mainstream headlines tell you, price inflation remains persistently sticky, and there really is no justification for a tightening pause. But the Fed has other problems to reckon with, including a financial crisis that continues to unfold.

As Schiff said in a recent podcast, the Federal Reserve has screwed up everything that is a function of interest rates by keeping rates so low for so long. Rate hikes have already precipitated a financial crisis that is still in its early stages with a third banking getting bailed out just a little over a week ago. And it’s only a matter of time before other things break in this bubble economy.

The ugly truth is that despite the fact that inflation is far from beaten, the Fed will ultimately have to cut rates in order to rescue the banking system, the insolvent US government, overleveraged corporations, and individuals who have tried to cope with skyrocketing inflation using credit cards.

The moment it is forced to reckon with the damage done by decades of easy money, it will return to easy money like a pig to mud — no matter what the central bankers are telling you today.

This is why Schiff says we are in for an inflation tsunami.

I think the Fed is going to have to unleash so much inflation to try to prop up all these banks, and the US government, which is also insolvent. That is going to unleash runaway inflation. That is the real problem. Nobody’s money is safe in any bank, because even if your bank doesn’t fail, it’s going to be bailed out through inflation. So, you might not lose your money, but your money will definitely lose its purchasing power.”