U.S. inflation could peak, but high prices here to stay

WASHINGTON, May 11 (Xinhua) -- The worst surge in U.S. inflation in 40 years slowed somewhat in April, but prices are expected to remain sky high for the foreseeable future, economists said Wednesday.

"The good news is that inflation is finally beginning to decline from its four-decade high, albeit very modestly," Desmond Lachman, resident fellow at the American Enterprise Institute and a former official at the International Monetary Fund, told Xinhua.

The bad news is that inflation remains too high for the Federal Reserve to back off from its proposed course of aggressive monetary policy tightening, which is being done in a bid to bring inflation under control, Lachman said.

The Consumer Price Index for All Urban Consumers increased 0.3 percent in April on a seasonally adjusted basis, down from a 1.2 percent rise in March, the U.S. Bureau of Labor Statistics (BLS) reported on Wednesday.

While that marked a slight slowdown from a rapid uptick, inflation remains at its highest in 40 years - an 8.3 percent increase over the last 12 months, albeit down slightly from March's 8.5 percent.

That's one of the highest points since the end of WWII, when the United States emerged as a superpower.

Markets were volatile on the news, dropping at the start of trading, climbing as investors digested the news, and slumping again during afternoon trading.

Continued high inflation "raises the real prospect" that in the run-up to this November's election, the economy could see a combination of both inflation and recession, Lachman said.

Sam Bullard, senior economist at Wells Fargo, a major U.S. bank, told Xinhua that a peak in inflation is beginning to form, on a year-on-year basis.

But with so many issues occurring globally, which impact commodity prices and labor, the underpinnings of elevated inflation will remain in place for the foreseeable future, Bullard said.

Increases in the indexes for shelter, food, airline fares, and new vehicles were the largest contributors to the seasonally adjusted increase, the BLS reported.

In response to the imminent economic threat of inflation, Federal Reserve officials have set out on a more aggressive monetary policy path that should help quell inflation come 2023. However, even with expedited tightening, it is going to be a long climb down, Wells Fargo noted in an email to reporters earlier this week.

Energy prices were to blame for around 70 percent of March's hefty increase, and the conflict in Ukraine sent food prices higher over the month, according to Wells Fargo.

Some analysts expressed optimism.

James Paulsen, chief investment strategist of The Leuthold Group, told Xinhua: "I think inflation is peaking, and with that will come improved confidence."

The United States saw a double-whammy of some of the highest inflation and lowest confidence in post-WWII history over the past year.

Paulsen said a peak in inflation and improved confidence should help consumer discretionary stocks - shares of companies that sell non-essential goods and services including autos, entertainment and appliances.

Such stocks tend to get squeezed in inflationary cycles, as they use a lot of labor and other commodity resources to produce what they sell.

But when consumer confidence goes up, such stocks go up as well, Paulsen noted.

Inflation is a political hot spot for the White House, as record prices are expected to continue into November's midterm elections - at a time when U.S. President Joe Biden's polls stand at an all-time low.