Everyday Prices Reverse Direction in March

Chart 1. Trends in everyday prices (EPI) vs. the Consumer Price Index The EPI increased 0.7 percent in March after decreasing by the same amount in February.
Table 1. EPI expenditure categories and March 2016 weights

AIER’s Everyday Price Index rose 0.7 percent in March from February, fueled by energy prices increasing, but it fell 1.7 percent compared with 12 months ago. The EPI measures the change in prices that people see in their everyday purchases, such as groceries, restaurant meals, gasoline, and event admissions.

The EPI including apparel, a broader measure of everyday prices, posted a 0.8 percent increase in March and a 1.6 percent drop for the past 12 months. Both measures exclude prices of infrequently purchased, big-ticket items (such as cars, appliances, and furniture) and exclude prices that are contractually fixed for prolonged periods (like housing).

The more widely known price gauge, the Consumer Price Index reported by the Bureau of Labor Statistics, increased 0.1 percent in March on a seasonally adjusted basis. The not seasonally adjusted CPI increased 0.4 percent for the month and 0.9 percent over the past 12 months. Since the EPI aims to reflect the prices that people actually pay, it is not seasonally adjusted, so we compare it with the not seasonally adjusted CPI.

The increase in the EPI is driven by energy prices. Gasoline, the most important of these, increased 10.1 percent across all grades in March after dropping for the past eight consecutive months.  As a result, the overall EPI rose.  Because the EPI covers only about 35 percent of total consumer expenditures, energy-related price increases have a much larger effect on it than on the CPI.

Partially offsetting the rise in energy are falling food prices.  Food-at-home fell 0.7 percent in March and has fallen 0.5 percent over the past 12 months, much below the historical average of 2.3 percent. The only major category of food-at-home rising over the past 12 months was fruits and vegetables. Lower food-at-home prices are in part due to a drop in agriculture and livestock.

Food and energy prices are notoriously volatile, so the changes seen in March could easily be reversed in coming months. Other, less volatile everyday prices have been moving higher recently. Personal-care services rose 0.2 percent in March and 3.1 percent over the past 12 months, well above their long-term average of 2.3 percent. Prescription drug prices increased 0.4 percent in March, and prices for restaurant meals increased 0.2 percent. The cost of home entertainment also rose: Cable was up 1.4 percent in March and internet service increased 0.8 percent. 

Chart 1. Trends in everyday prices (EPI) vs. the Consumer Price Index The EPI increased 0.7 percent in March after decreasing by the same amount in February.
Table 1. EPI expenditure categories and March 2016 weights