By Dean Baker
A core CPI that excludes rent is up by just 0.8 percent over the last year.
In spite of concerns about the economy approaching full employment, the Consumer Price Index continues to show no evidence of acceleration. The overall CPI rose by 0.2 percent in April while the core index rose by just 0.1 percent. Over the last year the overall CPI has risen 2.2 percent, while the core index increased by 1.9 percent. Comparing the average price level for the last three months with the prior three months, the core rate has risen at just a 1.8 percent annual rate.
The difference between the overall and core index is due to a 1.1 percent jump in energy prices after two months of sharp declines. With world oil prices falling again in recent weeks, this increase will not continue and may be reversed.
The main item pushing core inflation higher continues to be rents. The index for rent rose by 0.3 percent in April, while the index for owners’ equivalent rent rose by 0.2 percent. For the year they are up by 3.8 percent and 3.4 percent, respectively. The core index excluding rent is up by just 0.8 percent over the last year.
There were some anomalies in both directions in the April data. Prescription drug prices fell by 0.9 percent, leaving an increase of 3.1 percent over the last year. College textbook prices fell by 1.2 percent, putting the year over year increase at 4.6 percent. The price of physicians’ service fell by 1.2 percent, leaving a 1.9 percent year-over-year increase.
On the high side, hotel prices rose 2.1 percent in April, giving a year-over-year increase of 2.9 percent. This figure is always erratic due to the difficulty of seasonal adjustments. Cigarette prices rose by 4.5 percent, presumably the effect of taxes being raised in the month.
The price of new cars fell by 0.2 percent in April, leaving a modest 0.4 percent increase over the last year, while used car prices fell 0.5 percent. They are down 4.6 percent for the year. With demand for new cars appearing to weaken and a glut of used cars showing up on the market due to cars purchased with subprime loans being repossessed, it seems likely that prices will be flat or trending downward for the near future.
There is some modest evidence of inflationary pressures showing up at earlier stages in the production process.
Final demand prices in the producer price index rose by 0.5 percent in April, but this follows a 0.1 percent decline in March. They are up 2.5 percent over the last year, driven by higher energy prices. The core index for final demand prices rose 0.4 percent last month and is up by 2.3 percent over the last year. Among the items driving price increases in the final goods index are car prices, which rose by 0.4 percent in April, and cigarettes, which rose by 2.2 percent.
Over the year, car prices and cigarette prices are up by 2.1 percent and 7.6 percent, respectively. In both cases, prices are likely to increase at a slower pace in future months.
Import prices, excluding food and fuel, rose 0.3 percent in April and up 1.0 percent over the last year. Export prices excluding food and fuel fell by 0.1 percent in April. They are up by 0.6 percent over the last year. Core import prices had been falling between 2013 and 2016, putting downward pressure on inflation, but the recent increases are still lower than the rates in 2011 and 2012. The future course of prices will of course depend in large part on movements in the value of the dollar.
The basic story from the April price report is that inflation continues to be well under control with no real evidence of inflationary pressures building. The rate of inflation in the core CPI actually appears to be slowing slightly rather than accelerating. What little inflationary pressure exists is primarily coming from housing.