Fed inflation hawks got no help this morning as consumer price inflation was essentially nonexistent for March. Overall CPI inflation for March nudged up to 0.1 percent from no change the prior month. The March rise matched the consensus forecast for a 0.1 percent increase. Core CPI inflation, however, eased to no change from up 0.1 percent in March and coming in just under expectations for a 0.1 percent gain. At the headline level, food prices rose moderately while energy costs were flat. The core was held down in part by declines in apparel and recreation and flat housing costs.
Looking at detail, the energy component of the CPI was flat after declining 0.5 percent in February after jumping 2.8 percent the month before. Gasoline dipped another 0.8 percent, following a 1.4 percent decline in February. Food inflation rose 0.2 percent after a 0.1 percent gain the month before.
Keeping the core soft in March were a 0.4 percent drop in apparel prices, a 0.1 percent dip in recreation, and no change in housing costs. Housing has been flat or negative for an unheard of four months in a row.
Year-on-year, overall CPI inflation firmed to 2.4 percent (seasonally adjusted) from 2.2 percent in February. The core rate edged down in March to 1.2 percent from 1.3 percent the month before. On an unadjusted year-ago basis, the headline number was up 2.3 percent in March while the core was up 1.1 percent.
Overall, inflation remains quite subdued-matching Fed expectations. Today's news is good for bonds.To understand the data using the same formula over a long period of time gives deeper relevance to the data and the charts. The following chart uses a scale that reflects conditions in 1982-84 as the benchmark that the Fed has removed through adjustments in the data/chart above. These adjustments removed embedded inflation resulting from devaluation of the dollar. (Reminder, the Fed writes its own rulebook.) Here is the unadjusted chart for CPI.
The charts above both make CPI appear as a volatile index, showing big year over year changes. In the following chart we can see the influence on the data from the energy component (the green line). Also shown below is the Core CPI which is CPI excluding food and energy inputs (purple line).
No matter how you slice it, overall price inflation is still not spreading far statistically, despite the influence from the energy data. However, in our 2010 real dollar experience, food and energy inflation will have a greater impact on our pocket books, whether or not it is reflected in the CPI index. The numbers do not tell the whole story.
Inquiring minds may want to know more about the way CPI is determined. To that end, I am attaching a link to a white paper from the Bureau of Labor Statistics, dated March 2010, and titled "Consumer Expenditures in 2008". From this white paper, I have pulled a table that lists the household expenditures included in the Consumer Expenditure Survey for 2005-2008. The survey is the tool that is used to gather this data from thousands of households across the country, and the table below shows what percentage of total household expenditures each item is. I was curious in particular to know what the energy influence is.