Key US inflation gauge climbs to 13-year high as reopening supercharges demand

• A popular measure of inflation rose faster than forecast in April as reopening lifted demand.
• Consumer prices rose 4.2% year-over-year, although that reading is skewed by negative price growth in April 2020.
• The Fed has said that reopening and stimulus will likely drive strong, but temporary, inflation.

Prices of common goods in the US climbed faster than forecasted in April as the US economy leaped out of year-long lockdowns.

The Consumer Price Index jumped 0.8% last month, the Bureau of Labor Statistics said Wednesday morning. The median estimate from economists surveyed by Bloomberg was for a 0.2% month-over-month gain. The reading follows a 0.6% jump in the CPI from February to March.

Prices climbed 4.2% year-over-year, marking the strongest inflation since September 2008. Economists expected a year-over-year reading of 3.6%.

The jump was primarily driven by a 10% increase in prices for used cars and trucks. Food prices grew 0.4%, while gas prices fell 1.4% through the month.

Economists have pegged rising prices to bottlenecks throughout the economy. Shortages of raw materials have boosted prices of everything from lumber to toilet paper in recent months.

Such bottlenecks should fade as the recovery continues, according to JPMorgan. Sustained policy support and strong economic growth will drive more Americans into the workforce and help producers better service burgeoning demand, the team led by Bruce Kasman said.

Core inflation - which leaves out volatile energy and food prices - rose 0.9%. That's the largest monthly increase for the core index since 1982.

The year-over-year measure is heavily influenced by the low levels of inflation seen in April 2020, since prices broadly fell at the start of the health crisis as lockdowns cut sharply into spending. That decline makes for a lower benchmark with which to compare prices in April 2021, or what's known among economists as "base effects." The same dynamic played out in the March CPI report and will likely loom over May and June inflation comparisons.

Economists long expected inflation to surge as the country reopened and Americans revived their pre-pandemic spending trends. Savings were bolstered over the past year by roughly $5 trillion in stimulus packages and decreased spending on in-person services. As weather gets warmer and governments reverse longstanding economic restrictions, the resulting surge in demand was expected to accelerate price growth.

How inflation trends from here, however, is a mystery. One side of the economist inflation debate, led by Federal Reserve Chair Jerome Powell, believes inflation will peak during reopening before fading back to about 2%. Others, including former Treasury Secretary Larry Summers, argue trillions of dollars in pandemic-era stimulus risks an inflationary spiral similar to the debilitating price growth of the 1970s.