The Consumer Price Index (CPI) Increased 0.8% in April
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Implications:  Consumer prices rose in April at the fastest pace in more than a decade as supply chains struggled to keep up with rapidly rising demand.  The April rise of 0.8% comes after increases of 0.6% in March and 0.4% in February, bringing the three-month change to a 7.2% annual rate, the fastest increase since 2008.  Usually, when we get a sudden sharp spike in inflation, it's because of energy prices, but not this time.  Energy prices declined 0.1% in April while food prices, also sometimes a source of volatility, rose a relatively moderate 0.4%.  Instead, it was "core" prices, which exclude food and energy, that led overall consumer prices higher in April.  Core prices rose 0.9%, the largest monthly increase since 1982.  The leading driver of the increase in core prices was used cars and trucks, which rose 10% in just one month, the largest gain ever for the series, which dates back to 1953.  Other key contributors were airfares (+10.2%), hotels/motels (+8.8%), and car and truck rentals (+16.2%).  Overall consumer prices are now up 4.2% versus a year ago, while "core" prices are up 3.0%.  Of course the Federal Reserve is going to claim these increases are "transitory", which is its way of saying there is no need to change monetary policy.  And yes, we do not expect prices to continue to rise at the recent rapid clip.  But that doesn't mean we aren't headed for persistently higher inflation.  The M2 measure of the money supply is up 24% from a year ago, the federal government has ramped up "stimulus" efforts, and employers need to lift wages rapidly to compete with abnormally high unemployment benefits.  Math wins, and today the math says inflation above the Fed's 2% target is likely to be with us for some time.  Meanwhile, we should expect a much higher energy inflation reading in the month of May due to the cyber-attack on the Colonial Pipeline, which carries about 45% of the fuel consumed on the East Coast.  Inflation will be a front and center issue for markets and policymakers in 2021 and beyond.

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Posted on Wednesday, May 12, 2021 @ 12:05 PM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.