April CPI

The Consumer Price Index (CPI) fell in April according to the Bureau of Labor Statistics.  The prices for the basket of goods represented in the indicator fell 0.4 percent during the month.  This follows the 0.3 percent decline in March.  If food and energy are removed from the basket, the remaining goods, (known as the “core” CPI) cost increased by 0.1 percent.

Falling 4.3 percent, energy led the overall basket lower.  March’s drop was 2.6 percent.  Gasoline was the primary culprit behind the fall.  The petrol price collapsed 8.1 percent!  This is after the 4.4 percent drop to end the first quarter.

Food prices were higher in the month.  The monthly uptick was 0.2 percent, and is up 1.0 percent over the last twelve months.  Atlas was paying special attention to this part of the CPI report because of the drop in nominal food purchases within the Census Bureaus’ recent Retail Sales report.  One possible reason for the fall in non-inflation adjusted food sales is a decrease in prices.  Unfortunately, the CPI is not confirming this explanation.  Instead, the slower food sales may be due to stressed consumer budgets, partially caused by the full reinstatement of the social security withholding.

The “core” basket of goods is still growing at a relatively slow speed.  The sluggish price pace gives the central bank ample justification to keep monetary policy loose.  The “core” measure of inflation has grown 1.7 percent in the last year and is currently annualizing at 1.2 percent.  The Federal Reserve’s long-run goal for price growth is 2.0 percent, and in December they committed to sticking to their easy money game plan as long as inflation expectations in the market place remain below 2.5 percent.  If the earlier stages of production which were highlighted in Atlas’ most recent Producer Price Index posting are foreshadowing the coming trend in prices, the central bank will have plenty of time to pump cash into the system.    (by Christopher)