economy online news
By John Biers
US consumer inflation slowed in March, according to data released Wednesday, but remained well above the Federal Reserve’s target despite numerous interest rate hikes over the last year. online news
The rate of inflation year-over-year fell to 5.0 percent last month from 6.0 percent in February, the smallest 12-month increase since May 2021, according to the Bureau of Labor Statistics.
The report showed a 0.1 percent increase in March over the prior month on a seasonally adjusted basis, much lower than the 0.4 percent reading in February and below analyst expectations as well.
Although greeted by President Joe Biden as a sign of progress, several commentators noted that the inflation rate remains far above the Fed’s two percent target, adding that inflation remained elevated when food and energy costs are stripped out.
“The good news is that inflation continues to trend down, with prices increasing at their slowest pace since April 2021,” said Neil Saunders, managing director of GlobalData Retail.
“However, this is not a complete win as prices are still going up,” Saunders added. “This means many households continue to make choices about what and how to buy in order to balance their budgets. Inflationary behaviors are still prevalent among Americans.”
Analysts still expect the Fed to hike interest rates again next month, albeit by just a quarter percent point, smaller than several recent increases.
Food and energy
Chief among the contributors to the milder inflation number was a significant drop in energy prices, offset by higher costs for housing.
Price hikes also accelerated in new vehicles and medical care commodities.
economy online news
Food prices were flat in the quarter, with prices for meats, poultry and fish falling, while cereals, bakery products and nonalcoholic beverages climbed.
Biden, pointing to the drop in gasoline and grocery prices, said the data “shows continued progress in our fight against inflation,” according to a White House statement.
“While inflation is still too high, this progress means more breathing room for hard-working Americans,” Biden said.
After years of anemic pricing pressure in the United States and other major economies, inflation roared back to life, beginning in 2021.
Key factors behind the resurgence included supply chain problems that crimped availability of key goods; generous government fiscal packages that kept consumer demand elevated; and the Russian invasion of Ukraine, which increased volatility in the energy market and curtailed supply of some commodities.
In response to soaring inflation, central banks have undertaken a period of aggressive interest rate hikes, including in March, when the Fed and European Central Banks lifted rates despite worries over banking industry instability.
Troubling signs
Even with the better headline figure in Wednesday’s report, analysts noted that when food and energy were stripped out, a “core” inflation reading remained troublesome.
The year-over-year level of core inflation was 5.6 percent, up from 5.5 percent in the February report.
Noting that core services increased in March from the prior month, FHN Financial’s Chris Low predicted the latest data “will keep the Fed on its toes, supporting a May rate hike, and perhaps making the case the Fed should start thinking past the next meeting if it really wants to contain wage pressures.”
Prestige Economics’ Jason Schenker called the report “mixed,” noting that the state of the core figures “bolsters the potential for additional rate hikes in the immediate term to ensure high inflation rates do not plateau and remain stuck at these levels.”
Nonetheless, the report is the latest evidence that the Fed’s streak of interest rate hikes over the last year is weighing on economic activity.
While US labor market data has remained generally solid, recent reports on manufacturing and the services sector have shown signs of slowing.
After opening higher, US stocks dipped in late-morning trading, with the S&P 500 off 0.1 percent.
jmb/sw
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economy online news
The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in March on a seasonally
adjusted basis, after increasing 0.4 percent in February, the U.S. Bureau of Labor Statistics reported
today. Over the last 12 months, the all items index increased 5.0 percent before seasonal adjustment.
The index for shelter was by far the largest contributor to the monthly all items increase. This more
than offset a decline in the energy index, which decreased 3.5 percent over the month as all major
energy component indexes declined. The food index was unchanged in March with the food at home index
falling 0.3 percent.
The index for all items less food and energy rose 0.4 percent in March, after rising 0.5 percent in
February. Indexes which increased in March include shelter, motor vehicle insurance, airline fares,
household furnishings and operations, and new vehicles. The index for medical care and the index for
used cars and trucks were among those that decreased over the month.
The all items index increased 5.0 percent for the 12 months ending March; this was the smallest 12-month
increase since the period ending May 2021. The all items less food and energy index rose 5.6 percent
over the last 12 months. The energy index decreased 6.4 percent for the 12 months ending March, and the
food index increased 8.5 percent over the last year.
Food
The food index was unchanged in March. The food at home index fell 0.3 percent over the month, the first
decline in that index since September 2020. Three of the six major grocery store food group indexes
decreased over the month. The index for meats, poultry, fish, and eggs decreased 1.4 percent in March as
the index for eggs fell 10.9 percent. The fruits and vegetables index declined 1.3 percent over the
month, and the dairy and related products index decreased 0.1 percent.
In contrast, the index for other food at home rose 0.4 percent in March, following a 0.3-percent
increase the previous month. The cereals and bakery products index increased 0.6 percent over the month,
and the nonalcoholic beverages index rose 0.2 percent.
The food away from home index rose 0.6 percent in March, as it did in the previous 2 months. The index
for full service meals increased 0.7 percent over the month and the index for limited service meals
increased 0.5 percent.
The food at home index rose 8.4 percent over the last 12 months. The index for cereals and bakery
products rose 13.6 percent over the 12 months ending in March. The remaining major grocery store food
groups posted increases ranging from 2.5 percent (fruits and vegetables) to 11.3 percent (nonalcoholic
beverages).
The index for food away from home rose 8.8 percent over the last year. The index for full service meals
rose 8.0 percent over the last 12 months, and the index for limited service meals rose 7.9 percent over
the same period.
Energy
The energy index fell 3.5 percent in March after decreasing 0.6 percent in February. The gasoline index
decreased 4.6 percent in March, following a 1.0-percent increase in the previous month. (Before seasonal
adjustment, gasoline prices rose 1.0 percent in March.) The natural gas index decreased 7.1 percent over
the month, following an 8.0-percent decline in February. The index for electricity decreased 0.7 percent
in March, the largest decline in that index since January 2021.
The energy index fell 6.4 percent over the past 12 months. The gasoline index decreased 17.4 percent
over the last 12 months, while the fuel oil index fell 14.2 percent over the span. In contrast, the
index for electricity rose 10.2 percent over the last year, and the index for natural gas increased 5.5
percent over the same period.
All items less food and energy
The index for all items less food and energy rose 0.4 percent in March after rising 0.5 percent in
February. The shelter index increased 0.6 percent over the month after rising 0.8 percent in February.
The index for rent and the index for owners’ equivalent rent both rose 0.5 percent in March following
larger increases in the previous month. The index for lodging away from home increased 2.7 percent in
March.
The shelter index was the dominant factor in the monthly increase in the index for all items less food
and energy. Among the other indexes that rose in March was the index for motor vehicle insurance, which
increased 1.2 percent, and the index for airline fares which increased 4.0 percent. The indexes for
household furnishings and operations, new vehicles, education, and apparel also increased in March. In
contrast, the index for used cars and trucks fell 0.9 percent in March, continuing a recent downward
trend.
The medical care index fell 0.3 percent in March, after falling 0.5 percent in February. The index for
hospital services fell 0.4 percent over the month, after being unchanged in February. The index for
physicians’ services continued to decline, falling 0.2 percent after declining 0.5 percent in February.
The prescription drugs index increased 0.1 percent in March.
The index for all items less food and energy rose 5.6 percent over the past 12 months. The shelter index
increased 8.2 percent over the last year, accounting for over 60 percent of the total increase in all
items less food and energy. Other indexes with notable increases over the last year include motor
vehicle insurance (+15.0 percent), household furnishings and operations (+5.6 percent), recreation (+4.8
percent), and new vehicles (+6.1 percent).
Not seasonally adjusted CPI measures
The Consumer Price Index for All Urban Consumers (CPI-U) increased 5.0 percent over the last 12 months
to an index level of 301.836 (1982-84=100). For the month, the index increased 0.3 percent prior to
seasonal adjustment.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 4.5 percent over
the last 12 months to an index level of 296.021 (1982-84=100). For the month, the index increased 0.3
percent prior to seasonal adjustment.
The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) increased 5.1 percent over the last
12 months. For the month, the index increased 0.3 percent on a not seasonally adjusted basis. Please
note that the indexes for the past 10 to 12 months are subject to revision.
The Consumer Price Index for April 2023 is scheduled to be released on Wednesday, May 10, 2023, at 8:30a.m. (ET).
Brief Explanation of the CPI
The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services.
The CPI reflects spending patterns for each of two population groups: all urban consumers and urban
wage earners and clerical workers. The all urban consumer group represents over 90 percent of the
total U.S. population. It is based on the expenditures of almost all residents of urban or
metropolitan areas, including professionals, the self-employed, the poor, the unemployed, and retired
people, as well as urban wage earners and clerical workers. Not included in the CPI are the spending
patterns of people living in rural nonmetropolitan areas, farming families, people in the Armed Forces,
and those in institutions, such as prisons and mental hospitals. Consumer inflation for all urban
consumers is measured by two indexes, namely, the Consumer Price Index for All Urban Consumers (CPI-U)
and the Chained Consumer Price Index for All Urban Consumers (C-CPI-U).
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is based on the
expenditures of households included in the CPI-U definition that meet two requirements: more than
one-half of the household’s income must come from clerical or wage occupations, and at least one of
the household’s earners must have been employed for at least 37 weeks during the previous 12 months.
The CPI-W population represents approximately 30 percent of the total U.S. population and is a subset
of the CPI-U population.
The CPIs are based on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’
services, drugs, and other goods and services that people buy for day-to-day living. Prices are
collected each month in 75 urban areas across the country from about 6,000 housing units and
approximately 22,000 retail establishments (department stores, supermarkets, hospitals, filling
stations, and other types of stores and service establishments). All taxes directly associated with
the purchase and use of items are included in the index. Prices of fuels and a few other items are
obtained every month in all 75 locations. Prices of most other commodities and services are collected
every month in the three largest geographic areas and every other month in other areas. Prices of most
goods and services are obtained by personal visit, telephone call, or web collection by the Bureau’s
trained representatives.
In calculating the index, price changes for the various items in each location are aggregated using
weights, which represent their importance in the spending of the appropriate population group. Local
data are then combined to obtain a U.S. city average. For the CPI-U and CPI-W, separate indexes are
also published by size of city, by region of the country, for cross-classifications of regions and
population-size classes, and for 23 selected local areas. Area indexes do not measure differences in
the level of prices among cities; they only measure the average change in prices for each area since
the base period. For the C-CPI-U, data are issued only at the national level. The CPI-U and CPI-W are
considered final when released, but the C-CPI-U is issued in preliminary form and subject to three
subsequent quarterly revisions.
The index measures price change from a designed reference date. For most of the CPI-U and the CPI-W,
the reference base is 1982-84 equals 100. The reference base for the C-CPI-U is December 1999 equals
- An increase of 7 percent from the reference base, for example, is shown as 107.000. Alternatively,
that relationship can also be expressed as the price of a base period market basket of goods and
services rising from $100 to $107.
Sampling Error in the CPI
The CPI is a statistical estimate that is subject to sampling error because it is based upon a sample
of retail prices and not the complete universe of all prices. BLS calculates and publishes estimates
of the 1-month, 2-month, 6-month, and 12-month percent change standard errors annually for the CPI-U.
These standard error estimates can be used to construct confidence intervals for hypothesis testing.
For example, the estimated standard error of the 1-month percent change is 0.03 percent for the U.S.
all items CPI. This means that if we repeatedly sample from the universe of all retail prices using
the same methodology, and estimate a percentage change for each sample, then 95 percent of these
estimates will be within 0.06 percent of the 1-month percentage change based on all retail prices.
For example, for a 1-month change of 0.2 percent in the all items CPI-U, we are 95 percent confident
that the actual percent change based on all retail prices would fall between 0.14 and 0.26 percent.
For the latest data, including information on how to use the estimates of standard error, see
www.bls.gov/cpi/tables/variance-estimates/home.htm.
Calculating Index Changes
Movements of the indexes from 1 month to another are usually expressed as percent changes rather than
changes in index points, because index point changes are affected by the level of the index in
relation to its base period, while percent changes are not.
The Consumer Price Index (CPI) program produces both unadjusted and seasonally adjusted data.
Seasonally adjusted data are computed using seasonal factors derived by the X-13ARIMA-SEATS seasonal
adjustment method. These factors are updated each February, and the new factors are used to revise the
previous 5 years of seasonally adjusted data. The factors are available at
www.bls.gov/cpi/tables/seasonal-adjustment/seasonal-factors-2023.xlsx.
For more information on data revision scheduling, please see the Factsheet on Seasonal Adjustment at
www.bls.gov/cpi/seasonal-adjustment/questions-and-answers.htm
and the Timeline of Seasonal Adjustment Methodological Changes at
www.bls.gov/cpi/seasonal-adjustment/timeline-seasonal-adjustment-methodology-changes.htm.
How to Use Seasonally Adjusted and Unadjusted Data
For analyzing short-term price trends in the economy, seasonally adjusted changes are usually preferred
since they eliminate the effect of changes that normally occur at the same time and in about the same
magnitude every year-such as price movements resulting from weather events, production cycles, model
changeovers, holidays, and sales. This allows data users to focus on changes that are not typical for
the time of year.
The unadjusted data are of primary interest to consumers concerned about the prices they actually pay.
Unadjusted data are also used extensively for escalation purposes. Many collective bargaining contract
agreements and pension plans, for example, tie compensation changes to the Consumer Price Index before
adjustment for seasonal variation. BLS advises against the use of seasonally adjusted data in
escalation agreements because seasonally adjusted series are revised annually.
Intervention Analysis
The Bureau of Labor Statistics uses intervention analysis seasonal adjustment (IASA) for some CPI
series. Sometimes extreme values or sharp movements can distort the underlying seasonal pattern of
price change. Intervention analysis seasonal adjustment is a process by which the distortions caused
by such unusual events are estimated and removed from the data prior to calculation of seasonal
factors. The resulting seasonal factors, which more accurately represent the seasonal pattern, are
then applied to the unadjusted data.
For example, this procedure was used for the motor fuel series to offset the effects of the 2009
return to normal pricing after the worldwide economic downturn in 2008. Retaining this outlier data
during seasonal factor calculation would distort the computation of the seasonal portion of the time
series data for motor fuel, so it was estimated and removed from the data prior to seasonal adjustment.
Following that, seasonal factors were calculated based on this “prior adjusted” data. These seasonal
factors represent a clearer picture of the seasonal pattern in the data. The last step is for motor
fuel seasonal factors to be applied to the unadjusted data.
For the seasonal factors introduced for January 2023, BLS adjusted 57 series using intervention
analysis seasonal adjustment, including selected food and beverage items, motor fuels and vehicles.
Revision of Seasonally Adjusted Indexes
Seasonally adjusted data, including the U.S. city average all items index levels, are subject to
revision for up to 5 years after their original release. Every year, economists in the CPI calculate
new seasonal factors for seasonally adjusted series and apply them to the last 5 years of data.
Seasonally adjusted indexes beyond the last 5 years of data are considered to be final and not subject
to revision. For January 2023, revised seasonal factors and seasonally adjusted indexes for 2018 to
2022 were calculated and published. For series which are directly adjusted using the Census
X-13ARIMA-SEATS seasonal adjustment software, the seasonal factors for 2022 will be applied to data
for 2023 to produce the seasonally adjusted 2023 indexes. Series which are indirectly seasonally
adjusted by summing seasonally adjusted component series have seasonal factors which are derived and
are therefore not available in advance.
Determining Seasonal Status
Each year the seasonal status of every series is reevaluated based upon certain statistical criteria.
Using these criteria, BLS economists determine whether a series should change its status from “not
seasonally adjusted” to “seasonally adjusted”, or vice versa. If any of the 81 components of the U.S.
city average all items index change their seasonal adjustment status from seasonally adjusted to not
seasonally adjusted, not seasonally adjusted data will be used in the aggregation of the dependent
series for the last 5 years, but the seasonally adjusted indexes before that period will not be
changed. For 2023, 37 of the 81 components of the U.S. city average all items index are not seasonally
adjusted.