CPI: Consumer Prices Up 3.2%

By Steven Hansen and Doug Short

The Consumer Price Index (CPI) rose 3.2% year-over-year (YoY) in April 2011 – slightly higher than Econintersect’s expectations (analysis here of April PPI) but in line with consensus estimates.   Year-over year-Core CPI came in at 1.33%, which the BLS rounds to 1.3%, up from 1.19% last month.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in April on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.2 percent before seasonal adjustment.

The energy index posted another increase in April as the gasoline index continued to rise, the latter accounting for almost half of the seasonally adjusted all items increase. The household energy index also rose, with all of its major components posting increases. The food index increased as well in April, though the 0.5 percent rise in the food at home index was the smallest increase this year.

Within the food at home component, the indexes for meats, poultry, fish, and eggs, for dairy and related products, and for nonalcoholic beverages all posted notable increases, though the fresh vegetables index did decline following recent advances. The index for all items less food and energy rose 0.2 percent in April, the third increase of that size in the last four months. Indexes making major contributions to that increase included those for new vehicles, used cars and trucks, medical care, and shelter.

Many economists view price increases using core (price increases less food and energy).  Econintersect has analyzed this approach showing that food moves synchronously with core.  Remember 36% of the CPI is housing based (41% including energy) with 17% food and about 10% of the index is energy related.

Cost rise in food this month is 3.2%, and continues to confirm that the CPI and food prices are linked.

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).

The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since 1957. The second chart gives a close-up of the two since 2000.

On this chart, highlights the 1.75% – 2% range, which is generally understood to be the Fed’s target for core inflation.

The increase in both headline and core inflation will no doubt intensify the inflation debate. Federal Reserve policy, which focuses on core measures of the CPI and especially the Personal Consumption Expenditures (PCE), will likely see the low core numbers as support for the policy of quantitative easing and zero interest rates.  Core inflation remains well below the Fed target of 2%. annual rate.  Households that are sensitive to the price of gasoline, the major of the headline increase, will see the situation quite differently.

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