CPI and core inflation in the United States are much higher than expected, large fiscal restart in the United States, tight labor supply, superimposed measures taken by the Biden administration to be rich and poor, do not underestimate the inflationary pressure in the United States.

Us CPI rose 4.2 per cent in April from a year earlier, sharply exceeding market expectations of 3.6 per cent; quarter-on-quarter growth of 0.8 per cent, the biggest increase since the second half of 2009. Core CPI rose 3 per cent in April from a year earlier, sharply exceeding market expectations of 2.3 per cent and the biggest increase since 1997. (figure 1)

• The rise in CPI in April was mainly driven by core CPI, and the core CPI growth rate reached the highest level since 1983.Core CPI rose 0.9 per cent month-on-quarter in April, exceeding the overall CPI rise of 0.8 per cent (chart 2); food prices rose 0.4 per cent month-on-month, but still lower than at the beginning of the epidemic in the second quarter of last year; and energy prices fell 0.1 per cent month-on-month due to lower oil prices.

• The price increases of goods and services have expanded; compared with history, the increase in the price of services is more significant.In April, commodity prices rose 1.1% from the previous month, and service prices increased by 0.6% from the previous month. Commodity prices are at their highest level since 2018, and service prices rose the most since 2006 (chart 3).

• The increase in transportation-related prices has expanded significantly.Among the commodities, the price of used cars increased by 10% month-on-month (chart 4).

Among the services, car rental prices increased by 16.2% month-on-month, air ticket prices increased by 10.2% month-on-month (chart 5), sports ticket prices increased by 10.1% month-on-month, and accommodation expenses increased by 7.6% month-on-month (chart 6).

There are three main reasons for the sharp rise in inflation in April.

First, the US fiscal stimulus of $1.9 trillion hit the ground in mid-March, boosting recent consumption.

Second, the increase in vaccination rates in the United States will help restore outbound activities.

In addition, the lower-than-expected non-farm payrolls in April reflects that the US employment recovery still faces obstacles, as the labor demand for labor in the service industry is labor-intensive, and the tight supply of labor increases the upward pressure on the prices of the service industry.

We expect greater uncertainty over the month-on-month CPI in May, but overall inflation is still under upward pressure.

Due to the impact of the one-off impact of fiscal stimulus on the month-on-month rise in CPI in April, CPI growth is likely to slow in May. However, with the gradual increase in vaccination rates, service consumption is likely to recover further. It will take a long time for employment to recover, and labor supply constraints are likely to persist. In addition, the recent accelerated rise in global commodity prices has also put upward pressure on commodity prices.

Higher-than-expected inflation may increase the uncertainty of monetary policy and increase market volatility.

April CPI data show that the current market underestimates the upward pressure on US inflation, and the Fed may also underestimate the upward pressure on inflation. Us non-farm payrolls were sharply lower than expected in April, while inflation was sharply higher than expected, posing more challenges to monetary policy. Fed officials are still dovish recently, and sharply higher-than-expected inflation in April may not lead to an immediate response to monetary policy. The next FOMC meeting of the Federal Reserve will be held on June 15-16, and the May CPI released by the US Department of Labor on June 10 will attract great attention from the market.

The resumption of large US finances, the tight supply of labor, and the measures taken by the Biden administration to equalize the rich and poor, do not underestimate the inflationary pressure in the United States.