US CPI Up 0.3 Percent In March – Analysis

The Consumer Price Index rose 0.3 percent in March and 3.7 percent annualized over the last three months. Inflation in energy slowed with a 0.9 percent price increase last month, after a 3.2 percent jump in February. Food prices have been more stable in recent months, as March’s 0.2 percent increase brought inflation to 1.6 percent annualized since December. Consequently, the core index of inflation rose only 0.2 percent last month and at a 2.2 percent annualized rate over the last three months.

In recent years, there has been considerable difference in inflation between energy goods and energy services. While prices for energy goods have rebounded considerably from their fall — rising 8.7 percent over the last 12 months — these prices still stand 3.8 percent below their peak in the summer of 2008. By contrast, the price of energy services did not fall as far and has remained largely unchanged. Over the last 30 months, the price of energy services has risen 0.4 percent, yet remains 11 percent below its peak of July 2008.

Within core prices, inflation in both goods and services has been modest. The price of commodities less food and energy rose 0.2 percent in March as did the price of non-energy services. Over the last year, the former rose 2.1 percent, compared with 2.3 percent for services.

By far, the largest component in the index for core services is shelter, which accounts for 56 percent of that category and 42 percent of the core price index. The prices of rent and owners’ equivalent rent each rose 0.2 percent last month. Over the last year, owners’ equivalent rent rose 2.0 percent, compared with 2.3 percent for core prices generally, and a 2.7 percent increase in the overall CPI.

The difference in price inflation for medical goods versus services narrowed in March. Medical commodity prices rose 0.4 percent, compared to 0.3 percent for services. The prices of both physicians’ services and hospital services rose 0.2 percent after falling in February by 0.5 percent and 0.1 percent, respectively.

Within core commodities, the price of used cars and trucks rose 1.3 percent after declines in January and February. Over those three months, inflation ran at a 0.3 percent annualized rate. By contrast, the price of new vehicles has run at a 3.2 percent annualized rate since December.

The Producer Price Index for finished goods was unchanged in March and up 1.9 percent annualized since December. This modest rate of inflation was in part due to a 0.6 percent annualized rate of decline in the price of finished energy goods that subtracted more than 0.5 percentage points of inflation from the PPI. The core PPI rose 0.3 percent in March and at a 3.6 percent annualized rate since December.

At earlier stages of production we are witnessing higher rates of inflation. However, this inflation follows large price declines over the second half of 2011. The price of core intermediate goods rose 0.6 percent last month and at a 6.4 percent annualized rate over the last three months. Core intermediate prices had fallen throughout the latter half of 2011, and the index stands less than 0.2 percent above its July peak.

Similarly, the more volatile crude core goods index rose 1.1 percent in March and at a 6.0 percent annualized rate since December. Prices in this category of goods fell at a 21 percent annualized rate in the three months prior.

Overall, this month’s inflation reports show modest and steady inflation outside of energy prices. If the dollar continues to fall — raising trade prices — this may bring with it some additional inflation. However, the March data show little evidence of any kind of inflation that requires action on the part of the Federal Reserve to slow the economy. This is again reflected in the labor market data, which showed a $0.01 fall in the real hourly wage for the third consecutive month.