CPI: Auto Price Declines Push Core Lower

Bottom Line: Both headline and core inflation were lower than expected in April. Commodity-related items in core, about 1/4th of core, saw mostly lower prices, especially new and used vehicles. User cars and trucks have now fallen more than 8% annualized over the last 3 months. Services components of core rose but, overall, are showing some signs of deceleration with the pace of gains in the last 3 months slower than those of the last 6 and 12 months. Airfares and cell phone plan prices have declined 4+% annualized over the last 3 months, keeping overall services prices in check, despite a slight acceleration in the largest component, owner's equivalent rent (OER). For now the overall trend in core inflation is showing signs of deceleration - but the trend in OER bears watching. The CPI ROSE by 0.2% in April, compared with market expectations for an increase of 0.3%.

• Food prices increased by 0.26% while energy prices rose by 1.4%.
• Prices for gasoline rose by 3.0% while prices for fuel oil increased by 1.8%, prices for electricity slipped by 0.6%, and prices for natural gas fell by 0.4%.
• Energy prices are now 7.0% ABOVE their year ago level.

Overall consumer prices are now 2.4% ABOVE their year ago level; in March 2017, consumer prices were 2.4% 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 0.1%.
• Gains in tobacco (+1.3%), alcoholic beverages (+0.3%), were offset by declines in used cars & trucks (-1.6%), new vehicles (-0.5%).
• Prices for services excluding energy services rose 0.2% with moderate increase in shelter (+0.3%), owner's equivalent rent (+0.3%), and medical care services (+0.2%).

Core consumer prices are now 2.1% ABOVE their year ago level; in March 2017, consumer prices were 2.0% ABOVE their year ago level.