Inflation Slipped in April, but Upward Pressures Remain

Prices rose for groceries as well as dining out, airline travel and other services that consumers are turning to as they shift from spending heavily on goods from earlier in the pandemic. Airline fares surged 18.6% in April from a month earlier, the fastest rise on record. The cost of full-service restaurant dining rose 0.9% from March, the biggest gain since last October.

“Inflation is no longer just contained to the supply chain—these pressures are actually becoming more broad-based,” said

Aneta Markowska,

chief financial economist at Jefferies LLC, referring to disruptions in goods supplies that initially drove the run-up in prices.

U.S. stock indexes wavered amid a stretch of market volatility. Investors are closely watching inflation trends for clues on the pace of the Federal Reserve’s interest-rate increases.

The CPI measures what consumers pay for goods and services. The annual rate of inflation has risen sharply since early 2021, when the U.S. economy’s rebound from the pandemic accelerated, leading to supply disruptions and other imbalances that have put upward pressure on prices.

On a monthly basis, the CPI rose a seasonally adjusted 0.3% last month after a 1.2% increase in March. However, the so-called core-price index—which excludes the often-volatile categories of food and energy—increased 0.6% on the month, a sharp pickup from March’s 0.3% gain, providing a sign of broad-based inflationary pressure.

Services prices, excluding energy, rose 0.7% in April from March, the fastest one-month increase since 1990.

April’s report offered a mixed picture for vehicle prices, which have risen sharply since last year due to demand and supply shortages. Used car and truck prices were up 22.7% on the year in April, down from a 35.3% rise in March. But new vehicle prices were up 13.2% from a year ago in April, the largest 12-month increase since 1949.

The Fed faces the tricky feat of tightening monetary policy enough to quell inflation and cool the economy without throttling growth and causing a recession. Central-bank officials on May 4 raised rates by half a percentage point, the biggest increase since 2000.

“What we’re starting to see is inflation is spreading to the services side of the economy—it’s emanating from the labor market side,” said Ms. Markowska. “That’s less likely to go away on its own, so the Fed will have to work that much harder to get us back to 2% inflation.”

The U.S. economy added 428,000 jobs in April, the 12th straight month in which job gains exceeded 400,000. Despite the furious pace of hiring, there was still a yawning gap between job openings and the pool of available workers—a sign that demand for labor is far outstripping supply. Employers are trying to hire workers to meet increased demand, posting 11.5 million job openings earlier this spring, the highest in records dating to 2000. The number of times workers quit also rose to a record in March, at 4.5 million.

Those dynamics are pushing up wage gains—adding multiple pressures on inflation. Some employers are raising prices to offset higher labor costs. Strong wage growth and hiring are also simply putting more income in Americans’ pockets.

The brisk pace of spending is a sign that consumers are for now able to absorb higher prices.

“We’re still at a point where consumer and business resistance to higher prices is severely reduced because no one has confidence that if they wait they’ll find the price they want later,” said

Lou Crandall,

chief economist of Wrightson ICAP. “That does give businesses more pricing power, [but] that’s probably a temporary phenomenon.”

A steady pickup in housing costs, which account for nearly one-third of the CPI, is also adding to inflationary pressure. Both tenant rent and so-called owners’ equivalent rent, which estimates what homeowners would pay each month to rent their own home, rose 4.8% from a year earlier, a pace last seen in the late 1980s and early 1990s.

Wendy Fisher, the owner of Good Day Pet Sitters, a boutique dog-walking and pet-sitting service in Dallas, said inflation has strained her otherwise booming business. Rents have shot up in the neighborhoods she serves, pushing her workers to areas outside the city. Higher gasoline prices have left her staff paying around twice as much for travel compared with a year ago.

“I have a really great staff and I need to retain these people—I don’t want to lose them over the cost of gas, or to a retail store where they can park their car and stay all day,” Ms. Fisher said.

In January, she said she reduced the geographic area she serves, cutting off business to about 40 customers. She also started distributing prepaid gas cards from a nearby Shell station to her workers to offset extra travel expenses. “I need gas prices to go down long term because my bottom line is really affected,” she said.

Most economists expect the 12-month inflation rate to come down in coming months, in part due to arithmetic factors known as base effects. That is, the consumer-price index rose sharply in the spring and early summer of 2021. As those earlier readings fall out of the basis for comparison, the 12-month inflation readings will likely decline, even if inflation accelerates on a monthly basis.

With inflationary pressure from the services sector building, goods prices will have to slow markedly to bring overall inflation down more substantially.

Supply-chain pressures continue to be an issue, with China’s strict lockdowns to contain a Covid-19 outbreak potentially prolonging manufacturing and other disruptions. “A lot of this [inflation] is still driven by logistical bottlenecks and as those ease you can get some payback in some categories like autos,” said Mr. Crandall, the economist at Wrightson ICAP.

Higher interest rates also should start biting into demand. And for most consumers, inflation is eclipsing wage gains.

Chip Miller said he hasn’t received a raise in five years. With inflation rapidly eroding his purchasing power, he has cut back on car trips out of state to visit relatives and started shopping around to save on groceries. “We haven’t altered our lifestyle horribly but where it does show up is my ability to put money into our retirement account,” said Dr. Miller, a 67-year-old marketing professor in Des Moines, Iowa.

The hit to savings is one of a number of retirement-related worries, as well as the decline in purchasing power for his retirement funds, he said. Housing affordability is another. He said his home value has appreciated at a much lower rate than those in Raleigh, N.C., and other places where he dreams of retiring. He said those hopes are dimming as the Fed raises rates.

“The houses in places I’d like to move to are going for roughly twice what mine does, and mortgage rates have gone up 2.25 percentage points,” he said. “So I might retire to a tent, or just stay where I am.”

Write to Gwynn Guilford at gwynn.guilford@wsj.com