Consumer Price Index -April 2010 redux

I posted earlier on the April CPI numbers but came across the macroblog post so wanted to revist the stuff i've come across on the recent CPI numbers--figured I might as well repost it...

 

Bureau of Labor Statistics:

On a seasonally adjusted basis, the Consumer Price Index for All

Urban Consumers (CPI-U) declined 0.1 percent in April, the U.S.

Bureau of Labor Statistics reported today. Over the last 12 months,

the index increased 2.2 percent before seasonal adjustment.

 

The index for energy decreased 1.4 percent in April and accounted for

the seasonally adjusted decline in the all items index. The indexes

for gasoline and natural gas both decreased significantly,

outweighing increases in the indexes for fuel oil and electricity.

 

The food index increased 0.2 percent in April, while the index for

all items less food and energy was unchanged. The index for meats,

poultry, fish, and eggs rose sharply in April and accounted for the

food increase; other grocery store food groups were mixed and the

index for food away from home rose slightly. Within all items less

food and energy, the indexes for recreation, airline fares, and

medical care all rose in April. Offsetting these increases were

declines in the indexes for apparel and for household furnishings and

operations. The continuing stability of the index for all items less

food and energy has resulted in an increase over the last 12 months

of 0.9 percent, the smallest 12-month increase since January 1966.

 

Bloomberg:

The cost of living in the U.S. unexpectedly dropped in April for the first time in more than a year, signaling the world’s largest economy is recovering without causing prices to flare.

The 0.1 percent fall in the consumer price index was the first decrease since March 2009, figures from the Labor Department showed today in Washington. Excluding food and fuel, the so-called core rate was unchanged, capping the smallest 12- month gain in four decades.

Retailers such as Wal-Mart Stores Inc. are cutting prices to bolster sales as customers face almost 10 percent unemployment and rising foreclosures. The lack of inflation, which may be reined in even more by the European debt crisis, is one reason Federal Reserve policy makers have pledged to keep the benchmark interest rate near zero in coming months.

“There simply isn’t any kind of price pressure of any consequence in the economy,” said David Resler, chief economist at Nomura Securities International Inc. in New York, who accurately forecast the decline in prices. “This puts the Fed firmly in place for the foreseeable future.”

Stock-index futures held earlier losses after the report. The contract on the Standard & Poor’s 500 Index fell 0.5 percent to 1,112.9 at 8:43 a.m. in New York. Treasury securities were also lower, pushing the yield on the benchmark 10-year note up to 3.37 percent from 3.35 percent late yesterday.

Rise Projected

Consumer prices were forecast to rise 0.1 percent, according to the median forecast of 79 economists in a Bloomberg News survey. Estimates ranged from a drop of 0.2 percent to a gain of 0.4 percent. Costs excluding food and energy were projected to rise 0.1 percent.

In the 12 months ended in April, prices rose 2.2 percent following a 2.3 percent year-over-year gain the prior month. Economists had forecast a 2.4 percent rise in the 12 months to April, according to the survey median.

The core rate rose 0.9 percent from April 2009, the smallest increase since January 1966, after a 1.1 percent year- over-year advance the prior month.

Compared with a month earlier, energy costs dropped. Gasoline prices fell 2.4 percent.

 

Calculated Risk:

The disinflationary trend continues - and with all the slack in the system (especially the 9.9% unemployment rate), it is hard to see inflation picking up any time soon. The high unemployment rate and low measured inflation suggest the Fed will hold the Fed funds rate at the current level for some time.

 

Macroblog:

No matter how you cut the April report on consumer prices, retail inflation keeps coming up zero. Here are the key points:

• The consumer price index (CPI) fell a tiny bit in April but has remained essentially unchanged since January.
• The core CPI (excluding food and energy) hasn't posted a significant increase dating back to last October, and its 0.9 percent rise from a year ago is its smallest 12-month increase since 1966.
• The Federal Reserve Bank of Cleveland's median CPI continued a trend of essentially no change since October and is up a mere 0.5 percent from a year ago—a new year-over-year low for the series.

Oh, and the sticky-price CPI was up only 1.25 percent (annualized) in April. Maybe we ought to explain this last one a little more.

When you look at the headline CPI, what you're really looking at is a constellation of price movements that are a mixture of various forces. For example, there are changes in market conditions that are specific to particular goods—dairy prices fell sharply in April, presumably in response to an unanticipated jump in milk production. Stripping away these idiosyncratic price movements is, in large part, what the core inflation measures, including the Cleveland Fed's median CPI, are designed to do.

But economists tend to think of two general forces that drive all prices: (1) the amount of "slack" in the economy influencing the pricing power of firms and workers and (2) inflation expectations, which affect forward-looking price and wage decisions.

Of course, these two forces are unlikely to affect all prices in the exactly same way. Economists have long accepted the idea that some prices are "sticky," meaning they may not be particularly sensitive to changing market conditions, including economic slack.

 Center for Economic and Policy Research:

Falling energy prices pushed down the consumer price index 0.1 percent in the month of April.  After rising 2.7 percent from January of 2009 to January of 2010, consumer prices were unchanged over the first three months of this year.  Core prices were unchanged in April.  Inflation in the core index has risen at a 0.6 percent annual rate over the last three months and 0.3 percent over the last six.

After falling sharply in the second half of 2008, consumer prices rose at a 4.8 percent annualized rate from May to August of 2009.  Since then, the three-month rate of inflation has declined to zero.  Energy prices had been a strong driver of inflation; the three-month annualized rate reached 57 percent in the three months ending last August before falling at a 7.6 percent rate since January.

Falling rents also continue to hold down core inflation.  Rent of primary residence was essentially unchanged in April and despite a 0.1 percent increase in March, has remained flat over the last six months.  Owners’ equivalent rent (OER) of primary residences—which accounts for nearly four times as much of the CPI—fell less than 0.1 percent in April.  This was the sixth consecutive month of small decline in OER, and over that time it has fallen at a 0.7 percent annualized rate.

Falling energy prices helped push down transportation prices, which fell 0.5 percent in April.  Transportation prices have fallen at a 2.8 percent annualized rate over the last three months, after rising at a 14.2 percent rate over the previous three.  The previously-reported disinflation in the used-car market continued in April as prices rose only 0.2 percent in the month.  The cash-for-clunkers program drove the three-month rate of inflation in the price of used cars to an annualized rate of over 30 percent for the quarter ending in October, but has declined steadily since then.  Used car prices have risen at a 5.6 percent rate since January.

Apparel prices fell again in April.  Though apparel accounts for less than 4 percent of the overall CPI, prices have fallen at a 7.0 percent annualized rate over the last three months and 3.4 percent over the last six.

Elsewhere in the core index, medical care continues to be a source of price pressure—rising 0.2 percent in the month.  Among medical care costs, hospital and related services were again the fastest growing in April, though not as fast as the previous two months.  The price of hospital services rose 0.4 percent in the month—a 4.3 percent annualized rate of growth.  By contrast, those prices rose 1.1 and 1.0 percent in February and March, respectively.

Education prices rose another 0.5 percent in April.  Tuition, fees, and child-care prices have seen a 1.7 percent increase in the last three months—a 7.0 percent annualized rate of growth.  Tuition prices have averaged 5.9 percent annual inflation over the last ten years—more than twice as fast as the 2.4 percent inflation overall.

Non-agricultural export prices rose 1.4 percent in April, and have risen 6.0 percent over the last year.  At the same time, nonfuel import prices rose 0.5 percent.  The rise in both import and export prices has been concentrated in industrial supplies rather than consumer or capital goods.  The producer price indices largely tell the same story, as the price of core finished goods have risen at a 1.4 percent annualized rate over the last three months.

Non-food, non-energy crude prices have risen at a 43 percent rate over the last year, but this is in large part a recovery from the rapid fall in the second half of 2008.  Over the last three years, prices have risen at a 5.1 percent annualized rate.  Intermediate core goods show the same pattern.  Despite a sharp run-up and fall in 2008, and a current three-month rate of inflation over 11 percent, intermediate prices have risen a cumulative 8.2 percent over the last three years.

Overall, the inflation picture is not much changed since last month. The pressures at earlier stages of production are confined to supplies and materials, which have experienced large price booms and busts over the last few years, but producers have largely not passed these price changes on to consumers.  As a result, deflation is present in much of the core index and energy prices have begun to fall once again—leaving little threat of inflation.

 

Posted via email from Jim Nichols