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CPI: Core Slower Than Expected As Apparel Prices Fall

April 10, 2019

Bottom Line: Consumer inflation was in-line with expectations as energy prices rose in March, but core inflation came in slower than expected, up just 0.1% on the month (2.0% year-on-year) as apparel and used car prices fell. While these readings show muted inflation pressures, most of the deceleration in the 1st Quarter came from the more volatile core commodity sectors (clothing, used cars and medical care commodities). However, more telling for the longer-term trend there has been a modest acceleration in Owner's Equivalent Rent that is a bit surprising and bears watching going forward -- OER was up 4% annualized over the last three months, faster than the 2018 pace of 3.2%.

The CPI ROSE by 0.4% in March, compared with market expectations for an increase of 0.4%.

  • Food prices increased by 0.28% while energy prices rose by 3.5%.
  • Prices for gasoline rose by 6.5% while prices for fuel oil increased by 1.4%, prices for electricity climbed by 0.4%, but prices for natural gas fell by 0.1%. Energy prices are now 5.1% BELOW their year ago level.
  • Overall consumer prices are now 1.5% ABOVE their year ago level; in February 2018, consumer prices were 2.2% ABOVE their year ago level.
    The Core CPI ROSE by 0.1%, compared with market expectations for an increase of 0.2%.
Prices for commodities excluding food and energy commodities fell by 0.2%.

  • Gains in tobacco (+1.6%), new vehicles (+0.4%), were offset by declines in apparel (-1.9%), and used cars & trucks (-0.4%).
  • Prices for services excluding energy services rose 0.3% with moderate increase in shelter (+0.4%), owner's equivalent rent (+0.3%), and medical care services (+0.3%).
  • Core consumer prices are now 2.1% ABOVE their year ago level; in February 2018, consumer prices were 1.8% ABOVE their year ago level.

Article by Contingent Macro Advisors