Inflation: It’s Not Over Until It Is Over

Chief Economist Eugenio J. Alemán discusses current economic conditions.

Markets have been very positive this week on better-than-expected inflation numbers. The Consumer Price Index (CPI) printed a better than expected 0.1% in March with the year-over-year rate declining to 5.0% compared to a 6.0% year-over-year rate reported in February of this year. Meanwhile, the Producer Price Index (PPI) declined by 0.5%, the largest month-over-month decline since April of 2020. On a year earlier basis, the PPI was the lowest since January of 2021.

But the devil is in the details, although the details seem to have been sidestepped by markets earlier this week. And the details seem to indicate that although the fight against inflation continues, the road ahead is still perilous, especially considering the recent increase in petroleum prices and thus, in gasoline prices. But oil and gasoline prices are not the only reasons why we are not as happy as markets are today. Two of the most important sectors the Federal Reserve (Fed) is watching for inflation going forward are still way up there and although there are signs of weakening, there is still a long way to go before they make a substantial contribution to the disinflationary trend we are already seeing in other sectors.

We are talking about shelter costs but more specifically about owners’ equivalent rent. In March of this year, shelter costs increased 0.6% compared to 0.8% in February while owners’ equivalent rent increased 0.5% after an increase of 0.7% in February. For shelter costs it matched the increase we saw in November of last year while for owners’ equivalent rate it was the lowest reading since a similar print in April of 2022. However, the details are less encouraging, especially because shelter costs, which includes owners’ equivalent rent are still increasing on a year earlier basis as well as on a 12-month moving average basis.