Written by Steven Hansen
According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 1.5 % year-over-year (up from the reported 2.3 % last month). The year-over-year core inflation (excludes energy and food) rate declined from 2.4 % to 2.1 % and remains above the target set by the Federal Reserve.
Analyst Opinion of the Consumer Price Index
The index for energy was the reason for the decline of the CPI-U. Medical care services cost inflation increased from 5.3 % to 5.5 % year-over-year.
The market expected (from Econoday):
| Consensus Range | Consensus | Actual | |
| CPI-U – month-over-month (MoM) | -0.6 % to -0.1 % | -0.3 % | -0.4 % |
| CPI-U year-over-year (YoY) | 1.5 % to 2.0 % | +1.6 % | +1.5 % |
| CPI less food & energy (MoM) | 0.0 % to 0.2 % | +0.1 % | -0.1 % |
| CPI less food & energy (YoY) | 2.1 % to 2.4 % | +2.3 % | +2.1 % |
z cpi1.png
As a generalization – inflation accelerates as the economy heats up, while the inflation rate falling could be an indicator that the economy is cooling. However, inflation does not correlate well to the economy – and cannot be used as an economic indicator.
The major influence on the CPI was gasoline.
The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.4 percent in March on a seasonally adjusted basis, the largest monthly decline since January 2015, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.5 percent before seasonal adjustment.
A sharp decline in the gasoline index was a major cause of the monthly decrease in the seasonally adjusted all items index, with decreases in the indexes for airline fares, lodging away from home, and apparel also contributing. The energy index fell 5.8 percent as the gasoline index decreased 10.5 percent. The food index rose in March, increasing 0.3 percent as the food at home index rose 0.5 percent.
The index for all items less food and energy fell 0.1 percent in March, its first monthly decline since January 2010. Along with the indexes for airline fares, lodging away from home, and apparel, the index for new vehicles declined in March. The index for shelter was unchanged, with increases in the indexes for rent and for owners’ equivalent rent offsetting the aforementioned decline in the index for lodging away from home. Indexes that increased in March include medical care, used cars and trucks, motor vehicle insurance, and education.
Historically, the CPI-U general index tends to correlate over time with the CPI-U’s food index. The current situation is putting upward pressure on the CPI.
CPI-U Index compared to the Food sub-Index of CPI-U
Notice the gap in the above graphic between the CPI and Food – historically this gap has always closed when the knock-on effect from higher food prices into other CPI components moderates.
The graphs below compare health care to the CPI-U.
Month-over-Month Change CPI-U Index (red line) compared to the Medical Care sub-Index of CPI-U (blue line)
Year-over-Year Change CPI-U Index (red line) compared to the Medical Care sub-Index of CPI-U (blue line)
The Federal Reserve has argued that energy inflation automatically slows the economy without having to intervene with its monetary policy tools. This is the primary reason the Fed wants to exclude energy from analysis of consumer price increases (the inflation rate).
z cpi2.png
In the above chart – the green boxes are significant elements moderating inflation, while the red boxed items are significant elements fueling inflation.
The graph below looks at the different price changes seen by the BEA in this PCE release versus the BEA’s GDP and BLS’ Consumer Price Index (CPI).
Year-over-Year Change – PCE’s Price Index (blue line) versus CPI-U (red line) versus GDP Deflator (green line)
Caveats on the Use of the Consumer Price Index
Econintersect has performed several tests on this series and finds it fairly representative of price changes (inflation). However, the headline rate is an average – and will not correspond to the price changes seen by any specific person or on a particular subject.
Although the CPI represents the costs of some mythical person. Each of us needs to provide a multiplier to the BLS numbers to make this index representative of our individual situation.
The average Joe Sixpack budgets to spend his entire paycheck or retirement income – so even small changes have a large impact to a budget.
The Bureau of Labor Statistics (BLS) has compiled CPI data since 1913, and numbers are conveniently available from the FRED repository (here). Long-term inflation charts reach back to 1872 by adding Warren and Pearson’s price index for the earlier years. The spliced series is available at Yale Professor (and Nobel laureate) Robert Shiller’s website. This look further back into the past dramatically illustrates the extreme oscillation between inflation and deflation during the first 70 years of our timeline. Click here for additional perspectives on inflation and the shrinking value of the dollar.
Because of the nuances in determining the month-over-month index values, the year-over-year or annual change in the Consumer Price Index is preferred for comparisons.
Econintersect has analyzed both food and energy showing that food moves synchronously with the core.
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