US Overall And Core CPI Decline In March – Analysis

Both the overall and core consumer price index declined in March. The overall index fell by 0.3 percent, while the core index declined by 0.1 percent. The overall index has increased by 2.4 percent over the last year, while the core index has risen by 2.0 percent.

The drop in the core index was not expected. This is the first decline in the core CPI since a 0.1 percent drop in January of 2010. Some of the factors leading to the decline were clearly anomalous. For example, the price of physicians’ services reportedly fell by 0.3 percent in March. They are now up by 3.0 percent over the last year.

Apparel prices fell by 0.7 percent. They are up 0.6 percent over the last year. Monthly movements in this component are often erratic. In the same vein, hotel prices reportedly fell by 2.4 percent in March and are up by 0.4 percent over the last year.

New vehicle prices dropped by 0.3 percent in March, while the price of used cars fell 0.9 percent. The former is likely an anomaly that will be reversed, new vehicle prices are up by 0.2 percent over the last year. However the drop in used vehicle prices likely reflects real conditions in the car market. Many subprime car loans are going bad, causing people to lose their cars and flood the used car market. Prices over the last year are down by 4.7 percent. The glut of used cars will put downward pressure on new car prices and sales over the next year or two.

Housing continues to be the one major area showing substantial price pressure. Rent proper rose by 0.3 percent in March and is up 3.9 percent over the last year. Owners’ equivalent rent rose by 0.2 percent and is up by 3.5 percent over the last year. Even the rate of inflation in college tuition appears to be well under control, with prices flat in March and up by just 1.9 percent over the last year. The story is a bit worse for child care, with prices rising by 0.1 percent in March and 3.1 percent over the last year.

A minor item in the index that is perhaps worth noting with tax day coming up, is that the cost of tax preparation and other accounting services jumped by 2.4 percent in March. It is up by 6.5 percent over the last year.

There is also no evidence of inflation at earlier stages in the production process. Final demand prices in the producer price index fell by 0.1 percent in March. They are up 2.3 percent over the last year, driven by higher energy prices. The core index for final demand prices was flat last month and is up by 1.6 percent over the last year. This is a slightly more rapid rate of increase than we saw through most of 2016, but still below the growth rates of 2013 and 2014, which peaked on a year-over-year basis at 2.1 percent in May of 2014.

Nonfuel import prices rose 0.2 percent in March and is up 1.0 percent over the last year. Export prices excluding food and fuel rose by 0.3 percent in March, but are up by just 0.9 percent over the last year.

It is very hard to see any evidence of increasing inflationary pressures in the price reports for March. The only major area where there is notable price pressure is housing. The CPI without food, energy, and shelter, is up just 1.0 percent over the last year. The rate of inflation in this measure has actually been trending downward over the last year. It peaked at 1.6 percent in February of 2016 (it had been over 2.0 percent in 2011 and 2012), and has gradually edged downward. Since price trends in rents do not follow the same pattern as other prices, it is probably reasonable to remove them when considering a true core index. In any case, even including housing costs, there is no case to be made that inflation is accelerating, and if these costs are excluded, the rate of inflation appears to be slowing.