U.S. consumer inflation eased slightly in April but remained near a four-decade high, with prices 8.3% above a year earlier and a 0.6% monthly increase in the closely watched measure that excludes food and energy. The new data offer the first clear evidence that the extraordinary March acceleration may not repeat every month, but they provide little comfort to households still paying sharply more for groceries, housing, travel and many everyday services.

The Bureau of Labor Statistics’ April Consumer Price Index report shows the all-items index rising 0.3% from March, after a 1.2% surge the previous month. Gasoline prices fell 6.1% during April, helping slow the headline figure, but food rose 0.9%, shelter continued climbing, airline fares jumped 18.6% and new-vehicle prices increased. Over 12 months, food was up 9.4% and energy 30.3%.

Core inflation shows pressure spreading beyond gasoline

The decline from March’s 8.5% annual rate is important, but the composition of April inflation complicates any declaration that the problem has peaked. Prices excluding food and energy rose 0.6% for the month, twice the March increase, and were 6.2% above a year earlier. Shelter, which carries a large weight in the index and typically moves more slowly than commodities, continues to push upward.

Airfares provide another sign that inflation is shifting toward services as consumers resume travel and other activities disrupted by the pandemic. The 18.6% monthly increase reflects stronger demand as well as high fuel and labor costs. New vehicles also rose while used-car prices declined, illustrating how supply constraints are changing rather than disappearing.

Reuters reported that the smaller monthly CPI increase suggests headline inflation may have passed its fastest point, but economists cautioned that the path down could be slow. The war in Ukraine, renewed lockdowns in China and continuing transportation bottlenecks all threaten to keep goods and energy costs volatile.

Paychecks are still losing purchasing power

Nominal wages continue to rise, but not fast enough to offset the broader increase in prices. BLS’s real earnings report shows inflation-adjusted average hourly earnings down 2.6% from April 2021. Real hourly pay slipped another 0.1% from March to April, while real weekly earnings were essentially unchanged during the month.

That gap helps explain why household sentiment remains weak even with unemployment near historic lows. The preliminary University of Michigan survey, summarized in the May consumer-sentiment release, put its index at 59.1, down 9.4% from April and the lowest in roughly a decade. Thirty-six percent of respondents who viewed their finances negatively cited inflation, and buying conditions for durable goods reached the lowest level in the survey’s history.

Producer prices reinforce the concern that businesses remain under strong cost pressure. The April Producer Price Index rose 0.5% for the month and 11.0% from a year earlier. Final-demand goods prices increased 1.3%, including higher diesel fuel, electricity, natural gas and food costs. Some of those increases will be absorbed by company margins, but others are likely to reach consumers over time.

The Federal Reserve is moving faster

The inflation report arrives one week after the Federal Reserve raised its target interest-rate range by half a percentage point, the largest single increase since 2000. The May 4 FOMC statement said inflation remains elevated because of pandemic-related supply and demand imbalances, higher energy prices and broader price pressures. Policymakers also warned that the war in Ukraine and lockdowns in China could add to inflation and weaken economic activity.

The Fed also announced that it will begin reducing its nearly $9 trillion balance sheet in June, allowing Treasury and mortgage-backed securities to mature without full reinvestment. Its implementation note sets the new federal-funds target at 0.75% to 1.0% and details initial monthly runoff caps of $30 billion for Treasury securities and $17.5 billion for agency debt and mortgage-backed securities, with higher caps planned later.

Higher interest rates work by cooling demand across credit-sensitive areas such as housing, automobiles and business investment. That process is intentionally restrictive: policymakers want slower demand growth to reduce businesses’ ability to raise prices and to bring labor demand closer to available supply. The risk is that tightening too quickly could weaken employment and investment before supply problems resolve.

Inflation may be slowing without being solved

April therefore presents two simultaneous realities. The headline monthly rate slowed dramatically because gasoline prices fell from March’s spike. But underlying inflation remains broad, and several categories that matter heavily to household budgets continued to rise. Core CPI accelerating to 0.6% makes it difficult to argue that the Federal Reserve has already done enough.

Consumer sentiment is reflecting that squeeze. Contemporary reporting on the May survey notes that Americans’ assessment of their own financial position has deteriorated sharply even as strong employment and accumulated savings continue to support spending. Inflation is increasingly the bridge between an economy that looks healthy in payroll data and one that feels much less secure to consumers.

The coming months will test whether falling goods pressures can offset rising service costs and whether the Fed can reduce inflation without causing a recession. An 8.3% annual CPI rate is lower than March’s 8.5%, but it remains far above the central bank’s 2% longer-run objective. For households and policymakers alike, the difference between “past the peak” and “back under control” remains very large.