As expected, the March Consumer Price Index (CPI) was pulled lower by energy prices. The CPI was down 0.4% in March from February, and up 1.5% compared to a year ago. Core CPI was down 0.1% compared to the prior month and up 2.1% year-over-year. Food and beverage prices were up 0.3% in March from February, while energy costs fell 5.8% with the subcomponent of gasoline down 10.5%.
Shelter costs – which account for about a third of the CPI basket of goods – were flat in March. Excluding shelter only, the CPI was down 0.7%. Shelter costs have been a steady contributor to upward price pressures in the last couple of years, but the arrival of the COVID-19 pandemic have had an impact on costs of lodging away from home. Rents and Owners’ equivalent rate were both up 0.3% in March. However, that may change as the pandemic impacts consumers’ ability to purchase a home and sale prices reflect lower demand and as landlords will not have the same pricing power to raise rents.
In particular, the BLS noted decreases in airline fares (down 12.6%), lodging away from home (down 6.8%), and apparel (down 2.0%) as contributors to softening consumer prices. The former two reflect the collapse of the hospitality industry during the pandemic, and the latter that consumers are simply not shopping as much and probably not interested in sprucing up spring wardrobes right now.
The pandemic may also be having an impact on costs of medical care services which rose 0.5% in March from February. Costs for medical care commodities ended a string of declines with a flat reading in March, possibly reflecting demand for items like gloves and masks.
The FOMC is more focused on preventing labor market conditions from worsening during the present downturn in economic activity through provision of liquidity and easy borrowing. These same decisions are prescribed to prevent inflation from falling too low, so the March CPI numbers will not be of first concern for policymakers at the upcoming April 28-29 meeting. The Fed’s preferred measure of inflation is the PCE deflator, but the March report will not be available until after the FOMC meeting on Thursday, April 30 at 8:30 ET. In any case, where services have been the major source of upward price pressure while commodities prices are soft. That may no longer be as true for services.
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