Housing, gasoline prices contributed most to US consumer inflation in April

11 May 2023 , 03:37 PM

US consumer price inflation increased y-o-y by 4.9% in April. This is the slowest annual increase in consumer inflation in the country in the last two years. The biggest contributor to  inflation in the month was shelter. Shelter means housing. Housing cost inflation went up the most in the month for US citizens. It stood at 8.1%, on y-o-y basis, according to data from US Bureau of Labor Statistics. On a month-on-month basis, it increased by 0.4%.

One reason for increase in shelter inflation may be increase in rents. Rents go up when housing supply decreases; when people buy lesser number of houses. Due to the 10 successive interest rate hikes by US Federal Reserve, since the beginning of 2022, the cost of mortgage loans for buying houses has gone up sharply. This has made many potential house buyers defer their purchases. Many buy houses to generate rental income. With decrease in supply of housing for rent, rents may have gone up. The new method of calculation of shelter inflation of US central bank also includes the increase in mortgage costs. Mortgage costs directly go up with increase in interest rates.

Gasoline prices went up month-on-month by 3%. This explains the increase in month-on-month inflation in April to 0.4%, from 0.1% in March. On y-o-y basis, gasoline prices  came down by 12.2%. This also is the reason for a significant portion of the decline in annual rate of inflation in April. 

Food prices increased by 7.7% on y-o-y basis. Prices of used cars and trucks also increased in the month. New vehicle prices came down during the month. This indicates that demand for used cars and trucks is increasing. Vehicles are interest sensitive investment or consumption. Individuals and businesses may be making lower investments by purchasing used ones rather than new ones. Lower investment will result in lower interest payments on money borrowed for these purchases.