May 12, 2017 – The Consumer Price Index (CPI) tells us of any inflationary pressures in the economy. The CPI measures the average price levels of a basket of goods and services purchased by consumers. The index starts with a base time period (1982-1984, currently) and shows the overall increase since that time. As with many economic indicators, it can be volatile from month to month with food and energy prices often leading the volatility.
The Consumer Price Index rose by 0.2% in April, exactly as expected. This was after March CPI dropped by 0.3% a month netting a 0.1% decrease from February. Fresh vegetables had its largest increase since 2011 at 5.1%. Core CPI (which excludes food and energy) dropped by 0.1% in March and rose 0.1% last month, which was 0.1% below the consensus. Year-over-year changes for Core CPI are up 1.9% although the consensus was a 2.0% rise. Energy prices went up 1.1% in April after two months of losses making the year-over-year increase 9.3%.
The weak year-over-year changes resulted from the large price drop of oil in March and relatively smaller increase the following month. Energy prices were a major driver of April’s price rise and would normally continue to increase at a similar rate this time of year based on last year’s trend. However, more oil rigs have been added to the US rig count and prices are not likely to follow that trend. Fruits and vegetables rose by 2.2% but are volatile and not a large portion of CPI. Every other category had only minor increases, or even decreased, in April. The coming month’s CPI figures should be closely scrutinized as we approach the June Fed meeting, with the market anticipating a rate hike.