Used car prices contributed to the rise of the cost of living index in April
MARY LOUISE KELLY, HOST:
For the first time in two years, inflation has dropped to under 5%, but barely. Annual inflation was 4.9% for April. That is down only slightly from the month before, meaning people shopping for used cars may have suffered sticker shock, but there were some savings to be found on airline tickets. NPR's Scott Horsley is here to talk us through this. Hey, Scott.
SCOTT HORSLEY, BYLINE: Hi, Mary Louise.
KELLY: Inflation is coming down slowly, slowly. Tell me where it is helping people and where are we still paying more.
HORSLEY: Yeah, it was a really mixed bag in April. Gasoline prices were up last month, but natural gas and electricity prices were down. Groceries got a little bit cheaper in April for the second month in a row, but it cost more to eat out. Used car prices, as you mentioned, were a big driver of inflation last month. They had been falling for most of the last year, but they made a U-turn in April and rose by a whopping 4.4%. Pat Ryan, who's CEO at the car buying app CoPilot, says there's just a lot of demand on used car lots right now for high-end SUVs, mostly from wealthy buyers who are not turned off by the rising interest rates on car loans. Ryan says it's a tough market, though, for anybody who just needs a basic vehicle to get back and forth to work.
PAT RYAN: If you need to buy another $20,000 car, there simply aren't that many available relative to the demands. And really, what that means is people are having to buy older cars, typically higher-mileage cars, which puts those buyers at risk of bigger bills to maintain and repair those cars over time.
HORSLEY: And the cost of car repair also rose last month. It's up more than 20% over the last 12 months.
KELLY: And how are we looking on plane tickets? Because I just paid a fortune for a couple of flights. How are we looking for summer vacation?
HORSLEY: Yeah, there's actually some encouraging news there. Hotel room rates dropped more than 3% in April, and airfares, which had been sky-high, came back down to earth as well. Omair Sharif, who runs a forecasting firm called Inflation Insights, says airlines are lowering fares on some flights, even though planes are pretty full and the crowds at TSA checkpoints are basically back to pre-pandemic levels.
OMAIR SHARIF: So it's not that people are not traveling as much, but the pressure on airfares from jet fuel costs has receded. You know, you're also getting to a point where there's only so much I think people are going to bear in terms of how much it costs to fly from New York to LA or Chicago to Miami or wherever.
HORSLEY: And the drop in airfares in April helped to keep a lid on service price inflation last month. That's something that the Federal Reserve has been keeping a close eye on.
KELLY: Speaking of the Fed, their strategy has been - they're trying to curb inflation. Where does this leave them?
HORSLEY: Yeah, the Fed's goal is to get inflation back down to 2%, and prices are moving in that direction. But as you said, they're not moving very fast. Inflation has come down from just over 9% last summer to just under 5% in April. But getting from 5 to 2% could be a slog. The Fed's already raised interest rates 10 times in the last 14 months in an effort to tamp down demand and get prices under control. Last week, the Fed hinted that rates may have gone high enough, and that now it's just a matter of time before inflation settles down. Oren Klachkin, who's with Oxford Economics, thinks that patient approach might be the right call.
OREN KLACHKIN: The Fed is in a difficult situation right now. They want to definitely bring inflation down, but they don't want to put too much stress on the economy.
HORSLEY: After all, the economy's facing plenty of other stresses already.
KELLY: Elaborate on that. What other stresses?
HORSLEY: Well, there's the turmoil in the banking system. That's making credit harder to come by, which could be a drag on businesses that want to expand and hire. And then we've got this wild card of the debt limit talks here in Washington. If those end badly, we could get a government default, which would probably help to lower inflation, but only by sending the economy into a tailspin.
KELLY: Thank you, Scott.
HORSLEY: You're welcome.
KELLY: NPR's Scott Horsley. Transcript provided by NPR, Copyright NPR.