Consumer Prices See Biggest Jump Since 2008

May 12, 2021

Prices rose at the fastest pace in more than 12 years in April, according to the Labor Department. The Consumer Price Index (CPI), which measures prices for a basket of common goods, as well as housing and energy costs, rose 4.2% from a year earlier. This is much higher than the 3.6% increase economists had expected.

While the increase set alarm bells ringing for some economists and investors, it is important to remember that the year-over-year comparison is based on prices in April 2020, when the pandemic began in earnest and prices faced downward pressure. More concerning is the month-to-month increase, which saw prices climb 0.8%, well above the 0.2% increase economists had expected. 

It remains to be seen whether this spike is transitory, as the Federal Reserve believes, or persistent. Some of the increase can be attributed to the economy roaring back to life. Used cars, for example, saw prices climb by 10% in April alone. This could be due to a confluence of factors, like the semiconductor shortage limiting the supply of new cars and commuters looking to avoid mass transit after the pandemic. However, surging commodity prices, especially for staple food products, could mean consumers will face higher prices at the grocery store for the foreseeable future.

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