Scorecard
Overall, indicators tracked in the AIER’s Inflationary Pressure Scorecard point to a benign inflation climate in the months ahead. The increased inflation rate measured by the Consumer Price Index (CPI) in February confirms an estimate by AIER’s scorecard last month that inflationary pressure has firmed. However, in our latest review we see that pressure decreasing. Eight of the 23 indicators tracked are showing rising inflationary pressure compared with nine at last look, and 13 are showing falling pressure compared with 11 in last month’s assessment. Two were stable (Table 1).
On the demand and supply front, rising inflationary pressure from income growth was offset by falling pressure from a decline in retail sales. Similarly, increased pressure from slower consumer goods production was balanced by a gain in the retail inventory/sales ratio. Overall, demand and supply measures suggest a neutral inflation scenario for the months ahead.
On the money and credit front, no indicators show signs of runaway inflation. In terms of cost and productivity, the Producer Price Index components of final demand are all exerting downward pressure on inflation. However, lower wholesale prices are not always passed on. Labor costs have increased at a faster pace in recent months, coinciding with slowing productivity and pressing inflation higher.
Consumer Price Index Analysis
The Consumer Price Index increased 0.2 percent in February after declining for four consecutive months starting in October. But, over a three month period, the index decreased at an annualized 3.1 percent rate compared with the previous period. Over the past 12 months, the CPI trended down at a 0.1 percent rate, way below the Federal Reserve’s 2 percent target. The decrease was mainly caused by sharp declines in energy prices since last summer. The CPI has risen 1.6 percent on average in each of the past five years and has shown an average of 2.2 percent annual growth over the past two decades (Table 2).
Food, which accounts for over 14 percent of the goods and services reflected in the CPI, advanced 0.2 percent for the month. Food prices increased 1.4 percent in the latest three-month period and 3.0 percent in the past 12 months. For all the time periods shown in Table 2, food prices have grown at a faster pace than the overall CPI. Energy prices, after falling for seven straight months, increased 1.0 percent in February, contributing to a positive growth in the CPI for the month.
The core CPI, which strips out volatile food and energy components, offers insights into the typically more stable underlying price trends. The core rate rose 0.2 percent in February and 1.7 percent year-over-year. To give a more detailed picture of price changes, we further break down the core CPI to the goods and services that are included.
Core goods, which account for nearly 20 percent of all goods and services measured by the CPI, rose 0.2 percent from the previous month. February’s gain was strong compared with the annualized 0.3 percent five-year average and the 0.3 percent 20-year average. By comparison, core services, the biggest share of the goods and services reflected in the CPI, advanced 0.1 percent for the latest month. Shelter and education costs both gained at a 0.2 percent rate, and transportation services went up by 0.3 percent. These were somewhat offset by a 0.2 percent decrease in medical care services.
Except for medical services, all the CPI components in Table 2 showed an increase in February. But the indicators tracked in our inflation scorecard point to falling inflation pressure in the coming months.
Everyday Price Index
After falling for three consecutive months, AIER’s Everyday Price Index, EPI (https://aier.org/research/everyday-price-index) rose at a 0.5 percent rate in February. In contrast, the CPI increased at a modest 0.2 percent rate that month. Energy prices drove both indexes higher while food and personal care cost changes were mixed.
Food prices gained 0.1 percent in February, reflecting a 0.3 percent increase in restaurant meal costs and a decrease of 0.1 percent in grocery prices. The increase in restaurant meals follows a period of rising consumer spending on dining out. Meanwhile, beef prices at grocery counters climbed 0.7 percent but seafood costs fell 0.9 percent. Other categories providing relief for consumers were dairy products and fresh fruits and vegetables, which both decreased 1.0 percent.
Energy prices gained 2.1 percent, as a large increase in gasoline costs offset a drop in utility charges. Gasoline across all grades rose 5.1 percent in February, notching the first increase in seven months. On the home front, natural gas prices fell 2.9 percent despite a harsh winter.
The price of taking care of your health was mixed in February. Prescription drugs climbed 1.0 percent but prices slid in other categories. Personal care products slipped 0.1 percent, personal care services fell 0.7 percent and gym membership costs dropped 1.3 percent.