Inflation Rises Above 3% but Core Remains Below Fed's 2% Target

by: Doug Short

The Bureau of Labor Statistics released the CPI data for March this morning. Year-over Headline CPI came in at 3.16%, which the BLS rounds to 3.2%, up from 2.68% last month. Year-over year-Core CPI came in at 1.33%, which the BLS rounds to 1.3%, up from 1.19% last month.

Here is the BLS summary:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 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 increased 3.2 percent before seasonal adjustment.

The energy index posted another increase in April as the gasoline index continued to rise, the latter accounting for almost half of the seasonally adjusted all items increase. The household energy index also rose, with all of its major components posting increases. The food index increased as well in April, though the 0.5 percent rise in the food at home index was the smallest increase this year. Within the food at home component, the indexes for meats, poultry, fish, and eggs, for dairy and related products, and for nonalcoholic beverages all posted notable increases, though the fresh vegetables index did decline following recent advances.

The index for all items less food and energy rose 0.2 percent in April, the third increase of that size in the last four months. Indexes making major contributions to that increase included those for new vehicles, used cars and trucks, medical care, and shelter. More...

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.

Click to View
(Click charts to enlarge)

On this chart, I've highlighted the 1.75% - 2% range, which is generally understood to be the Fed's target for core inflation.

Click to View

The increase in both headline and core inflation will no doubt intensify the inflation debate. Federal Reserve policy, which focuses on core measures of the CPI and especially the Personal Consumption Expenditures (PCE), will likely see the low core numbers as support for the policy of quantitative easing and zero interest rates. Households that are sensitive to the price of gasoline, the major of the headline increase, will see the situation quite differently.