Headline Inflation Up Slightly As Shelter and Food Costs Rise

April 15th, 2014

by Doug Short

The Bureau of Labor Statistics released the March CPI data this morning. Year-over-year unadjusted Headline CPI came in at 1.51%, which the BLS rounds to 1.5%, up from 1.13% the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 1.66% (rounded to 1.7%), up from the previous month's 1.57%.

The BLS headline calls attention to a rise in shelter and food costs. Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in March on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.5 percent before seasonal adjustment.

Increases in the shelter and food indexes accounted for most of the seasonally adjusted all items increase. The food index increased 0.4 percent in March, with several major grocery store food groups increasing notably. The energy index, in contrast, declined slightly in March as decreases in the gasoline and fuel oil indexes more than offset increases in the indexes for electricity and natural gas.

The index for all items less food and energy also rose 0.2 percent in March. Besides the 0.3 percent increase in the shelter index, the indexes for medical care, for apparel, for used cars and trucks, and for airline fares also increased. The indexes for household furnishings and operations and for recreation both declined in March.

The all items index increased 1.5 percent over the last 12 months; this compares to a 1.1 percent increase for the 12 months ending February. The index for all items less food and energy has increased 1.7 percent over the last 12 months, as has the food index. The energy index has risen slightly over the span, advancing 0.4 percent. More…

The Investing.com consensus forecasts for both headline and core month-over-month was 0.1%. Their year-over-year forecast was and 1.4% for Headline and 1.6% for Core.

The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since 1957. The second chart gives a close-up of the two since 2000.

On the chart below I've highlighted 2 to 2.5 percent range. Two percent has generally been understood to be the Fed's target for core inflation. However, the December 12 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low Fed Funds Rate and quantitative easing) are in place.

Federal Reserve policy, which has historically focused on core inflation, and especially the core Personal Consumption Expenditures (PCE), will see that the latest core CPI remains below the near-term target range of 2 to 2.5 percent, and the more volatile headline inflation is fractionally below the Core reading.

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