Inflation Is Cooling, But Businesses Aren’t Out of the Woods Just Yet


Inflation is still high, but it’s finally starting to cool, according to the latest tally of consumer prices. That’s little comfort to the  businesses that not only must reconcile higher costs but also lower demand as consumers begin to pull back spending.  

The Bureau of Labor Statistics on Wednesday released its monthly gauge of consumer prices, the Consumer Price Index, revealing a moderating but still high tally of inflation. In April, inflation dropped slightly to 8.3 percent, from 8.5 percent, marking the first dip in the index since September. Lower gas prices last month contributed to the slight decline.

Still, in April, the core price measure–after removing volatile gas and food products–actually rose by 0.6 percent. And analysts had predicted a lower overall gauge of about 8.1 percent in April.

While the overall numbers may soothe inflation fears in the short run, the Federal Reserve isn’t likely to budge from its campaign of hiking rates. The central bank moved to boost its key benchmark rate 50 basis points at its last meeting, that was on top of the quarter percentage point uptick in March. 

Ian Shepherdson, chief economist at Pantheon Macroeconomics, notes that the Fed’s actions may well prompt a recession, as increased interest rates could dampen spending and kill consumer demand.

None of this is lost on President Biden, who on Tuesday called inflation his number one priority. He noted that supply-chain issues and the war in Ukraine aren’t helping matters. He said he plans to fight inflation both by increasing taxes on billionaires and large corporations, in addition to coordinating a global release of oil reserves.

The cool off may be cause for optimism, however. As economist Lawrence J. White of New York University’s Stern School of Business told Inc. in November 2021, supply chain issues–which were then the main driver of inflation–would cause inflation to rise until they were resolved. Now that inflation has dipped, even if slightly, this may be evidence that some supply chains are returning to normalcy. 

For businesses that have had to increase their prices several times within the past year–like the restaurant chain Penn Station East Coast Subs, which increased prices three times in 2021 alone–this cool-off may signal, at the very least, a return to stability, albeit with higher year-over-year costs.

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