Evidence of Growing Price Pressure
- The Consumer Price Index for March decreased by 0.1 percent and is up 2.4 percent for the year.
- The Producer Price index for Final Demand increased by 0.3 percent in March.
- The Index of Small Business Optimism eased in March after a very strong February.
Price indexes were mixed on a month-month basis, but year-over-year comparisons are heading up. The Consumer Price Index for March was cooler than expected for the month, easing by just 0.1 percent, but the gain over the previous 12 months climbed to 2.4 percent. This is well above the 1.6 percent year-over-year increase from last June. The headline CPI was held down in March by energy prices, which fell by 2.8 percent. Gasoline prices were down 4.9 percent for the month. Food prices were also tame, gaining just 0.1 percent in March. Core CPI, excluding food and energy, increased by a steady 0.2 percent month-to-month. Over the 12 months ending in March, core CPI was up by 2.1 percent, above the 1.7 percent year-over-year gain from last November. The warmest components of CPI in March were the price index for shelter, which increased by 0.4 percent for the month, and the price index for medical care services, which gained 0.5 percent.
Upstream prices were warmer in March. The Producer Price Index for Final Demand increased by 0.3 percent for the month, driven by food prices, which increased by 2.2 percent as vegetable prices surged. Transportation and warehousing was also warm, increasing by 0.6 percent for the month. Trucking companies are looking for drivers and facing strong demand. Wholesale energy prices fell by 2.1 percent in March. Over the previous 12 months the PPI for Final Demand was up by 3.0 percent. Core PPI (final demand PPI less food, energy and trade) increased by 0.4 percent for the month, and was up by 2.9 percent over the previous year. Higher crude oil prices in April may push petroleum product prices up again in April and May.
The Federal Reserve will be watching the inflation data carefully in the weeks ahead as they contemplate their next fed funds rate hike. Markets expectations for a May 2 rate hike are next to nil. But expectations for June are increasing again. The fed funds futures market calculates an 89 percent implied probability of a June 13 fed funds rate hike.
The National Federation of Independent Business’s Small Business Optimism Index eased slightly in March, down from a very high reading in February. The current range for the NFIB Index is on par with readings from 2004-2005. The labor market components of the NFIB survey remained strong in March, countering the BLS payroll data which showed a weak increase of just 103,000 net new jobs for the month.
Market Reaction: U.S. equity markets opened with mixed results. The 10-Year Treasury bond yield is down to 2.78 percent. NYMEX crude oil is up to $66.10/barrel. Natural gas futures are up to $2.68/mmbtu.
For a PDF version of this report click here: CPI-041118.
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