CUNA Senior Economist Dawit Kebede said core inflation accelerated due to rising prices for housing, air travel and new cars.

Dawit Kebede

"The housing shortage, increased demand for summer travel and supply constraints due to the lockdown in China will make it difficult for these prices to fall in the coming months," Kebede said. "Housing prices — which account for one-third of families' spending — increased at an annualized rate of 6% in the last three months."

Curt Long, NAFCU's chief economist and vice president of research, said the drop in overall inflation was mainly the result of a 2.7% seasonally adjusted drop in energy prices from March to April. However, energy is up 30.2% from a year ago.

Long said housing costs contributed mightily to the rise in core inflation. The BLS report showed rent rose 4.8% over 12 months and 0.6% for the month, while equivalent costs for homeowners rose 4.8% for the 12 months and 0.5% for the month.

Curt Long

"Housing costs make up one-third of the hypothetical consumption basket and advanced by 0.5% for the third month in a row, establishing a high floor for overall inflation," Long said.

Also contributing to core inflation were new vehicles, which rose 13.2% over 12 months and 1.1% for the month. Used vehicles rose 22.7% over the 12 months, but fell 0.4% for the month.

The rise in prices has exceeded wage gains. Average hourly earnings rose 5.5% to $31.85 for the year and a seasonally adjusted 0.31% for April, according to BLS' jobs report released May 6.

The Fed raised rates by 50 basis points May 4, and it is expected to raise rates another 50 bps in June. But Kebede and Long said that might not be enough to curb inflation.

"Monetary policy change takes effect with a lag; hence the changes may not be sufficient to meet the Fed's year end inflation projection," Kebede said.

Long said April's inflation report "will do nothing to dissuade them" from raising rates.

"With the economy clearly slowing, if inflation fails to respond quickly to higher rates, it will place even greater pressure on the Fed and increase the odds of a recession."