April Consumer Price Index: Core Inflation Remains Steady, Headline Deflation Worsens

May 22, 2015

by Doug Short

The Bureau of Labor Statistics released the April CPI data this morning. The year-over-year unadjusted Headline CPI came in at -0.20% (rounded to -0.2%), down from -0.07% (rounded to -0.1%) the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 1.81% (rounded to 1.8%), unchanged to one decimal place from the previous month's 1.75% (rounded to 1.8%).

Here is the introduction from the BLS summary, which leads with the seasonally adjusted monthly data:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in April on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index declined 0.2 percent before seasonal adjustment.

The index for all items less food and energy rose 0.3 percent in April and led to the slight increase in the seasonally adjusted all items index. The index for shelter rose, as did the indexes for medical care, household furnishings and operations, used cars and trucks, and new vehicles. In contrast, the indexes for apparel and airline fares declined in April.

The energy index declined in April, while the food index was unchanged. The indexes for gasoline, natural gas, and fuel oil all declined, while the electricity index was unchanged. The food at home index declined for the second month in a row, offsetting an increase in the index for food away from home. Major grocery store food group indexes were mixed.

The all items index declined 0.2 percent for the 12 months ending April. This represented a slightly larger decrease than the 0.1-percent decline for the 12 months ending March. The decline was driven by the energy index, which fell 19.4 percent over the last 12 months, with all the major components declining except electricity. The food index rose 2.0 percent over the last year, and the index for all items less food and energy rose 1.8 percent.   [More…]

Investing.com was looking for a 0.1 increase in the seasonally adjusted CPI and a 0.2% rise in Core CPI. Year-over-year forecasts were -0.1% for Headline and 1.7% for Core.

The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since the turn of the century. The highlighted two percent level is the Federal Reserve's Core inflation target for the CPI's cousin index, the BEA's Personal Consumptions Expenditures (PCE) price index.

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The next chart shows both series since 1957, which was the first time the government began tracking the core inflation metric.

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In the wake of the Great Recession, two percent has been the Fed's target for core inflation. However, at their December 2012 FOMC meeting, the inflation ceiling was raised to 2.5% while their accommodative measures (low Fed Funds Rate and quantitative easing) were in place. They have since reverted to the two percent target in their various FOMC documents.

Federal Reserve policy, which in recent history has focused on core inflation measured by the core PCE Price Index, will see that the more familiar core CPI remains below the PCE target range of 2 percent.

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