Economists expect April CPI report to show inflation on the rise

Economic news giveth, and it taketh away.

Last Friday, a surprisingly good April jobs report from the Bureau of Labor Statistics showed strong job creation and low unemployment. But on Tuesday, the April Consumer Price Index (or CPI report) is expected to show inflation rising significantly, led by gas and energy.

That will lead to questions facing economists, businesses, and consumers. How high will inflation go? What will go up in price next, after gas? And how long will it all last?

A popular word with economists about Tuesday’s inflation data is “hot” — and not in a good way.

“It’s just simply unmitigated disaster to have rising energy and related energy commodities,” said Jay Hatfield, CEO of Infrastructure Capital Advisors.

Economists expect headline inflation in April to come in at 3.8%, year over year. In February, before the war in the Middle East started, it was at 2.4%.

Hatfield said this happened before, when inflation spiked during the 1970s OPEC oil embargo. But the difference now is that the war is also affecting other key economic inputs.

“It’s not just an energy price shock, but the closure of the Strait (of Hormuz) is impacting a number of commodities exported out of the Middle East — so like, aluminum, steel, fertilizer,” he said.

So far, core inflation — which excludes food and energy — hasn’t risen sharply. But Joe Brusuelas, chief economist at the consulting firm RSM, said he expects to see that in the coming months.

“Second-order effects, whereby transportation costs jump, and then it begins to show up in food prices,” Brusuelas said. “And then later on in the year, due to the disruption of refined products and fertilizers, we’re expecting another round of price increases.”

U.S. consumers, meanwhile, are increasingly convinced that higher inflation is back. Joanne Hsu, director of the University of Michigan’s Surveys of Consumers, said they’re bracing themselves.

“(For) quite a bit of short-term pain,” she said. “For the next 12 months, consumers are absolutely expecting those gas price increases to pass through to consumer-facing prices overall.”

If headline inflation comes in as high as expected for April, Brusuelas said it will more than outpace average wage gains over the past year.

“What that means is people’s actual wages, after you adjust for inflation, will likely either be flat or in decline,” he said.

And even if the war ends and supply chains return to normal, price increases already in the pipeline will still keep inflation running high through at least the end of the year.