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US Consumer Inflation Picks Up On Energy and Housings

Posted by Joseph Trevisani on Apr 17, 2015 9:52:00 AM

Consumer prices rose for the second month in a row led by energy and housing expenses as the deflationary forces of the sharp decline in crude oil costs dissipate.

The headline consumer price index gained 0.24 percent in March based on wide spread increases in rents, clothing, health care and used vehicles, according to the Labor Department today. Economists in the Reuters survey had forecast a 0.3 percent increase. Prices had climbed an unrevised 0.22 percent in February, following three straight months of decline. 

The 'core price index' which excludes food and energy, rose 0.23 percent in March, as expected, after gains of 0.16 percent in February and 0.18 percent in  January. 

Annual prices changes still diverged sharply between the two indexes.  Headline CPI fell 0.1 percent in March from a year earlier following a flat February. This index has fallen from 1.7 percent last October, driven primarily by the plunge in energy prices. 

Core CPI rose 1.8 percent over twelve months to March, slightly more than the 1.7 percent forecast and February's rate.  The year over year core CPI has varied only 0.4 percent for the past 24 months, from 1.6 percent to 2.0 percent. 

Energy costs rose 1.1 percent in March which came on top of a 1.0 percent gain in February according to the Labor report. This is despite a decline in the price of a barrel of West Texas Intermediate crude from $49.45 to $47.60. The naionwide average price of a gallon of regular gas fell $0.1 to $2.41, according to the American Automobile Association. Overall prices of all types of gasoline rose 3.9 percent following a 2.4 percent rise in February.

Food expenses fell 0.2 percent on the month but health care costs rose 0.4 percent, the largest increase since August 2013. Prices for clothing climbed the most in a year and the purchase price of vehicles rose the most since June 2011. 

The Fed’s preferred measure of inflation, the 'core personal consumption expenditure price index’ rose 1.4 percent in February from a year before. The rate has been relatively stable for more than two years varying between 1.52 percent and 1.26 percent. The last time this rate was at the central bank’s 2 percent goal was April 2012. The March PCE figure will be release by the Commerce Department on April 30th. 

Federal Reserve officials have said that that they need to be 'reasonably confident' that inflation is heading  toward  their 2.0 percent target  before they will commence with the first hike in the benchmark Fed Funds rate in eight years.  The next FOMC meeting is April 28-29 and no rates changes are expected.

Last month’s weak  126,000 non-farm payrolls, the  lowest in over a year, along with several other poorecent statistics, including durable goods, factory orders and industrial production have pushed market expectations for the first increase back to September from June.

An increasing number of analysts think that a cooling U.S. economy and weakening global growth are making even that goal unlikely, with the Fed being constrained from raising rates until 2016. 

 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

Inflation vs. Oil (CPI-white; core CPI-yellow, WTI-green)

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