Consumer prices are expected to soar sharply in April data released on Wednesday. This is mainly due to a technical quirk. However, these investors will be watching closely as they attempt to determine whether inflation could change Federal Reserve policy.
The consumer price index is likely to have risen by 3.6 percent by April, predict economists surveyed by Bloomberg. The price increase from March to April is likely to be more restrained at 0.2 percent. The Ministry of Labor will release the numbers at 8:30 a.m.
The annual jump would be the fastest increase since 2011 and a sign that prices are rising as inflation numbers show extremely weak readings from 2020 and to a lesser extent as supply chain disruptions start to bite and demand increases.
Central bankers believe that the surge in prices will be short-lived and have made it clear that they want to look beyond a temporary spike in setting policy. The tech quirks at work in April will only last a few months, officials point out, and while it’s less clear when bottlenecks will be fixed, they are expected to work their way through the system at some point when businesses ramp up production to meet demand.
Wall Street and some economists fear, however, that the rapidly recovering economy, huge economic stimulus from Washington, and pent-up consumer demand could make price gains stronger or more sustainable than the Fed can tolerate.
An essential part of the central bank’s role is to contain price increases. So any likely sustained acceleration in prices could lead them to recall policies that keep money cheap and keep credit flowing. Decreasing support would likely cause stock prices to decline.
While the Fed defines its inflation target using a separate metric, the Personal Consumption Spending Index, this metric is based on data from the CPI and is also expected to go beyond the central bank’s target. Fed officials are targeting annual inflation averaging 2 percent.
It was clear to central bankers that if, contrary to their expectations, there were signs of sustained price increases, they would react. But they have also stated that they want to avoid prematurely withdrawing support from the economy, which could result in the labor market being incompletely healed and longer-term inflation in danger of reverting to uncomfortably low levels where it has been for much of the time have been bogged down in the last decade.
Lael Brainard, a Fed governor, said during a speech Tuesday that “staying patient through the temporary wave associated with the reopening will help ensure economic momentum to” achieve our goals. “
