AIER’s Inflationary Pressures Scorecard shows little change from the previous month, with continued firm pressure on inflation. Fourteen out of 23 indicators reflect increasing pressure, up from 13 last month. The remaining nine indicators show falling pressure.
Faster job creation and higher wage growth contribute to strengthening demand for goods and services, which puts upward pressure on consumer prices. Supply has caught up with rising demand, however. Industrial production appears to have grown faster in recent months, constraining consumer price increases. Overall, demand and supply are nearly balanced in terms of short-term effects on consumer prices.
Little changed on the money and credit front this month. Higher interest rates curbed price increases. Money supply and money velocity have been growing, which supports higher prices.
Most of the rising inflationary pressures come from increased production costs and falling productivity. Higher production costs are likely to be passed along, eventually pushing up consumer prices.
Consumer Price Index Analysis
Prices measured by the Consumer Price Index showed weaker-than-expected growth in March. While the CPI rose 0.1 percent from February, the fastest monthly gain since December, the increase was below economists’ expectations.
Energy was a major contributor to the CPI growth. After falling for three straight months, energy prices bounced back for a 0.9 percent gain in March, the biggest monthly rise since May of last year. In April, crude-oil prices continued to advance. By the end of April, the benchmark price, West Texas Intermediate crude, had climbed to about $43 a barrel from an average $38 in March. Energy will likely drive consumer prices up in April.
The lower-than-expected growth for March mainly came from declines in food and apparel. Food prices fell 0.2 percent, a fairly big but not striking monthly drop. Food prices are volatile, rising and falling abruptly. Lower apparel prices in March were more surprising. They jumped 1.6 percent in February, their biggest monthly gain in seven years, then tumbled 1.1 percent in March. So it is hard to predict where the data will show apparel prices headed in April.
Prices for services also grew at weaker-then-usual rates. Core services rose 0.18 percent, the slowest monthly gain since August. The slowdown could have resulted from greater supply growth and lower consumer demand. But those factors can easily change in the short term.
It’s worth noting that a strong growth trend in the core CPI, which excludes volatile food and energy prices, continued. Core CPI rose at a 2.6 percent annual rate over the previous three months and at 2.2 percent over 12 months. With a steadily improving labor market and positive consumer sentiment, prices are likely to continue advancing at about the current rate.
Everyday Price Index
AIER’s Everyday Price Index increased 0.9 percent in March from February but fell 1.5 percent over 12 months. The gauge measures the change in the costs of common, everyday purchases such as groceries, gasoline, and admissions.
On a seasonally-unadjusted basis, the more widely-known Consumer Price Index from the federal Bureau of Labor Statistics increased 0.4 percent in March and 0.9 percent over 12 months. Since the EPI is not seasonally adjusted, we compare it with the unadjusted CPI.
Energy prices included in the EPI stabilized in March. While gasoline jumped 10.1 percent after dropping for eight consecutive months, gas utilities dropped 0.7 percent, and electricity prices were unchanged. Because the EPI covers about 35 percent of common consumer expenditures, energy price declines have a larger effect on it than they do on the CPI.
Personal-care services inched up 0.2 percent in March and have increased 3.1 percent over the past 12 months, above a five-year average increase of 1.8 percent. Prescription drug prices rose 0.4 percent in March, and restaurant meal prices gained 0.2 percent. Cable television services cost 1.4 percent more while internet services climbed 0.8 percent.