The Consumer Price Index is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. Why Investors Care
| Released on 4/16/08 For Mar 2008 | |||||||||||||||||||||||||
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Highlights
Consumer prices in March may have actually surprised the markets by coming in as expected. The March CPI rose 0.3 percent, after no change in February and matched market expectations. The core rate also firmed, after a flat reading the month before and also equaled the consensus forecast.
By components, leading the CPI back up were transportation (including gasoline),"other," recreation, and education & communication. Apparel prices declined notably. By special category, energy posted a 1.9 percent rebound after dipping 0.5 percent in February. Food was a little softer in March, coming in at 0.2 percent, following a 0.4 percent spike the month before.
Year-on-year, the overall CPI slipped to up 4.0 percent in March from up 4.1 percent in February. The core rate rose to up 2.4 percent from up 2.3 percent the previous month.
Overall, the March CPI report still shows inflation on the high side - especially when looking at the headline year-ago pace. While the soft economy is damping some prices, those are spotty and continued food and energy inflation is keeping overall inflation hot. The Fed still has its work cut out balancing preventing recession and trying to bring inflation down. Today's decline in housing starts added to the conundrum. Bonds should like the combined numbers while equities will be unhappy with starts although earnings will be the key focus.
The consumer price index surprised the markets last month with unchanged readings for both the headline number and the core CPI in February. While the markets saw the numbers as a significant improvement in inflation, the more accurate interpretation is that February was merely coming off a strong January and that trend inflation is likely in between the two months. January had been notably strong with headline and core numbers coming in at 0.4 percent and 0.3 percent, respectively. What pulled February so low? Helping to ease core inflation were declines in prices for apparel and for new & used motor vehicles. Also, medical care inflation slowed sharply from a high number the month before. Also helping to flatten the headline number was a drop in energy costs. All of these factors could - and likely will - reverse in March.
CPI Consensus Forecast for March 08: +0.3 percent
Range: 0.0 to +0.5 percent
CPI ex food & energy Consensus Forecast for March 08: +0.2 percent
Range: +0.1 to +0.3 percent
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It is always a good idea to look at more than a few months of data to get a sense of changes in established trends. Monthly changes in the CPI are mainly volatile because of sharp fluctuations in food and energy prices. The core CPI eliminates the sharper fluctuations. |
![[Chart]](chart_1.gif)
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Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation. Even with the smoother trend, note that the core CPI does not fluctuate as much as the total CPI. |
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