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Gas Prices Add Punch To US Inflation Jump In March – Analysis

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The overall CPI story is mixed. The March figure is very bad, but we know some prices, most importantly gas, will be reversed in April. Food prices are still driven by higher shipping costs and supply chain disruptions.

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A drop in the index for non-food and energy goods is encouraging, but there is still far to go here. The data on shipping costs suggest that we will have more good news in this sector in months ahead.

It is also encouraging that rent indexes don’t seem to be accelerating, although the current rate of increase is rapid. Higher mortgage rates will likely slow rent rises, as higher income people will opt for less space, leaving more for others.

The overall CPI was up 1.2 percent in March, 8.5 percent year-over-year. Core was up just 0.3 percent, 6.5 percent year-over-year.

Gas prices were the biggest factor in the CPI jump — up 18.3 percent in March, 48.0 percent year-over-year — which added 1.6 percentage points to year-over-year inflation. The good news is that gas prices have fallen in April.

There is a sharp divergence in store bought food prices and restaurant prices. Food at home rose 1.5 percent in March, restaurants just 0.3 percent; rises year-over-year 10.0 percent and 6.9 percent, respectively, means restaurants are finding ways to become more efficient even as wages rise rapidly.

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Goods prices, excluding food and energy, fell 0.4 percent in March, but are still up 11.7 percent year-over-year. This is potentially a very big deal; the category accounts for 21.8 percent of CPI. This category was at the heart of the supply chain story. The price of many of these items were driven up by shortages and shipping bottlenecks, not production costs. The drop indicates problems are getting resolved. Some items had sharp price drops in price in March. TV prices were down 2.4 percent, now down 1.5 percent year-over-year, fully reversing sharp run-up last spring-summer. Car part prices were down 0.2 percent in March, and are still up 14.2 percent year-over-year.

Rental inflation appears to be slowing modestly. The rent proper index was up 0.4 percent in March, after rising 0.5 percent in January and 0.6 percent in February. The owners equivalent rent was up 0.4 percent for the seventh consecutive month.

The rent story continues to be one of sharp divergences across cities. Rent fell 0.1 percent in NYC, up 1.4 percent year-over-year; rent rose 0.2 percent in DC, up 0.9 percent year-over-year; rent in SF was up 0.1 percent, 0.3 percent year-over-year; Detroit rents were up 1.4 percent in March, 7.7 percent year-over-year; and Atlanta rents rose 0.2 percent in March, 9.1 percent year-over-year.

  • Used car prices fell 3.8 percent, but are still up 35.3 percent year-over-year. New car prices are still rising; 0.2 percent in March, 12.5 percent year-over-year.
  • Beef prices were up 0.3 percent in March, 16.0 percent year-over-year. Milk prices rose 1.3 percent in March, 13.3 percent year-over-year.
  • Apparel prices are still rising, up 0.6 percent, 6.8 percent year-over-year. This is where supply chain problems are still a big issue.
  • Prescription drug prices fell 0.2 percent in March, up 2.2 percent year-over-year.
  • Medical services were up 0.6 percent in March, 2.9 percent year-over-year. The biggest factor is health insurance, which was up 2.2 percent in March, 7.7 percent year-over-year.
  • Airfares were up 10.7 percent in March, 23.6 percent year-over-year, but still down 6.7 percent from the pre-pandemic level.
  • Lodging away from home was up 3.3 percent in March, 25.1 percent year-over-year, now up 9.9 percent from pre-pandemic levels.

Dean Baker

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy.

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