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March 2018 CPI: Year-Over-Year Inflation Rate 2.4% - Largest Increase In 12 Months


Is inflation beginning to grab hold?

In the short term, it appears that year-over-year inflation is growing.

But long term inflation forecasts are mixed.

According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 2.4 % - up 0.2 % from last month. The year-over-year core inflation (excludes energy and food) rate was 2.1 %, and is now slightly above the target set by the Federal Reserve.

Analyst Opinion of the Consumer Price Index

Even though the prices for oil decreased this month, they were the main driver for iyear-over-year nflation. Core inflation is now above 2.0 % year-over-year.

The market expected (from Bloomberg / Econoday):

Consensus Range Consensus Actual
CPI-U - month-over-month (MoM) -0.1 % to 0.5 % +0.0 % -0.1 %
CPI-U year-over-year (YoY) 2.2 % to 2.5 % +2.4 % +2.4 %
CPI less food & energy (MoM) 0.1 % to 0.3 % +0.2 % +0.2 %
CPI less food & energy (YoY) 1.9 % to 2.1 % +2.0 % +2.1 %

z cpi1.png

As a generalization - inflation accelerates as the economy heats up, while inflation rate falling could be an indicator that the economy is cooling. However, inflation does not correlate well to the economy - and cannot be used as a economic indicator.

The major influence on the CPI was again energy prices.

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in March on a seasonally adjusted basis after rising 0.2 percent in February, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 2.4 percent before seasonal adjustment. A decline in the gasoline index more than outweighed increases in the indexes for shelter, medical care, and food to result in the slight seasonally adjusted decline in the all items index. The energy index fell sharply due mainly to the 4.9-percent decrease in the gasoline index. The index for food rose 0.1 percent over the month, with the indexes for food at home and food away from home both increasing. The index for all items less food and energy increased 0.2 percent in March, the same increase as in February. Along with shelter and medical care, the indexes for personal care, motor vehicle insurance, and airline fares all rose. The indexes for apparel, for communication, and for used cars and trucks all declined over the month. The all items index rose 2.4 percent for the 12 months ending March, the largest 12-month increase since the period ending March 2017 and higher than the 1.6-percent average annual rate over the past 10 years. The index for all items less food and energy rose 2.1 percent, its largest 12-month increase since the period ending February 2017. The energy index increased 7.0 percent over the past 12 months, and the food index advanced 1.3 percent.

In the above chart - the green boxes are significant elements moderating inflation, while the red boxed items are significant elements fueling inflation.

I have read that one major cause of the increase this month had to do to the drop in the selling prices of mobile phones a year ago. It is hard to believe this was a major influence. But forecasts for inflation are all over the map - and my crystal ball is not telling me much.

For a complete analysis of the CPI [click here].

Other Economic News this Week:

The Econintersect Economic Index for April 2018 strongly improved and returned to territory associated with more robust economic growth normally associated with expansions. After the last few months of mediocre data, this month much of the data significantly improved. The 3 month rolling average (which is the basis of our forecast) improved 16%. This is the highest reading since October 2017.

For a summary of all of our analysis this past week - [click here].

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.