Scorecard
Inflation in March stayed sluggish, still substantially below the Fed’s 2 percent target. Our latest Inflation Pressure Scorecard points to an overall easing for the months ahead: Nine indicators show rising inflationary pressure, 12 suggest falling pressure, and two are stable.
On the demand and supply front, higher earnings and fast job creation put upward pressure on inflation. However, growth slowed in personal income. This could be driven by a slowdown in nonwage earnings, such as dividends, interest, property income, pensions, and so on. Retail sales dropped considerably, which usually by itself leads to lower prices. But in response to falling retail sales, production of consumer goods slowed, triggering rising inflation pressure.
On the money and credit front, the money supply has continued to grow, putting upward pressure on future prices. But revolving consumer credit decreased, offsetting pressure from the money supply.
In terms of costs and productivity, the Producer Price Index components of final demand all trended lower except for energy costs, possibly paving the way for a drop in future consumer prices. A strong dollar also contributed to lower import prices, pushing the CPI down further. But commodity prices, wages, and productivity all pressed inflation higher.
Consumer Price Index Analysis
The CPI advanced a seasonally adjusted 0.2 percent in March from February, the second consecutive monthly increase after a long-lasting decline since October. Compared with 12 months ago, the CPI was unchanged. This zero growth is substantially below the Fed’s 2 percent target. Over the longer term, the CPI rose an annualized 1.6 percent in the past five years and 2.2 percent over the past two decades (Table 2).
Food prices dropped 0.2 percent in March. This is the first decline in food costs since July 2014. Energy prices continued to rebound, increasing 1.1 percent after rising 1 percent in February.
The core CPI, which excludes volatile food and energy components, rose 0.2 percent in March, the same pace as the overall CPI. Lower food prices offset much of the increase in energy. But over the past 12 months, the core CPI approached a 1.8 percent annual increase, much higher than the zero growth rate of the overall CPI.
To look deeper into the core CPI, we can split it into core goods and core services. Core goods, which account for 20 percent of all goods and services within the CPI, rose 0.3 percent in March. The major positive contributor was apparel, which rose 0.5 percent. Core services, which account for 59 percent of all CPI components, advanced 0.2 percent from February, with the biggest positive contribution coming from education, at 0.5 percent.
Everyday Price Index
The AIER Everyday Price Index (EPI) increased 0.8 percent in March, compared with the CPI’s 0.2 percent gain. The large downturn in the EPI over the past 12 months stemmed from a precipitous drop in gasoline prices; the EPI assigns a greater weight to gasoline relative to the CPI.
Gasoline prices firmed for the second consecutive month in March, increasing 10.5 percent. All grades of gasoline rose for the month, but they were still down 29.2 percent for the past 12 months. Other everyday energy prices also fell. Utility gas prices slipped 1.9 percent and electricity declined 1.3 percent.
Food-at-home and food-away-from-home are major components of the EPI. Prices for food-at-home fell 0.5 percent. Looking at the major food-at-home categories, meats and dairy both decreased 0.5 percent and fresh fruits and vegetables dropped 2.2 percent, while cereal and bakery prices gained 0.3 percent. Prices for other food-at-home products edged down 0.2 percent, but there were large declines in butter and condiments, 4.7 percent and 1.5 percent, respectively. After a 2.9 percent run-up over the past 12 months, prices for food away-from-home rose 0.1 percent.
Prices for maintaining health and appearance were mixed. Personal-care services increased 0.6 percent, while related personal-care products declined 0.3 percent.
Over the past 12 months, core services rose 2.4 percent and core goods dropped 0.2 percent. Medical care commodities and education prices are the two fastest-growing CPI elements, up 4.2 percent and 3.5 percent, respectively, on a year-over-year basis.