March Consumer Prices

According to the latest reading from the Bureau of Labor Statistics, the Consumer Price Index (CPI) increased 0.3 percent in the month of March.  Over the last 12 months, the costs of goods and services measured in the CPI are 2.6 percent more expensive. This is a hefty downtick from February’s increase of 2.9 percent.

Food and energy combined to put pressure on this measure of inflation.  The cost of energy rose 0.9 percent; this latest price increase comes after the surge consumers felt in February of 3.2 percent.  Prices were 0.2 percent more expensive for food in March after no change in February.  Outside of the most volatile components, the cost of living still managed to increase by 0.2 percent following the tame 0.1 percent increase in February.  Notable price increases came from used vehicles, apparel, and shelter. After sliding for six consecutive months, used vehicles increased by 1.3 percent.  The cost of clothes pushed higher by 0.5 percent and shelter costs were up 0.2 percent for the sixth months in a row.

With the prices of so many items Americans buy growing, it is hard to establish an argument against being in an inflationary environment.  Atlas will attempt such an explanation nonetheless.  As the year grinds on, there are many challenges our economy faces that will impact the demand for goods. Without marginally higher consumption, it becomes difficult for retailers to push prices higher.  One of the most persistent issues constraining demand since the recession ended in June of 2009 is the labor market. With unemployment still relatively high, wages are not experiencing the type of upward pressure that accompanies a fully employed labor force; the acceleration in consumption needed to coax prices higher is less likely to materialize when there is so much labor market slack.  Simultaneously, Americans are still in the process of digging themselves out of the debt hole, so a smaller portion of their income is going to actual consumption.  In other words, Americans are using today’s income to pay for consumption that occurred in the past.  The evidence of these phenomena influencing prices may be manifesting in the declining year-over-year inflation rates.  The current cycle’s year-over-year CPI peak occurred in August 2011 when the reading was 3.6 percent. The year-over-year measure of CPI has now declined over 27 percent from the peak 12-month change that happened last year.   (by C. Cox)