05.01.07

Economic Trends

March Price Statistics

Michael F. Bryan and Linsey Molloy

Retail price data revealed a relatively more favorable inflation report in March. The Consumer Price Index (CPI) jumped 7.5 percent (annualized) in March, reflecting dramatically rising energy prices, which doubled over the month, but the CPI excluding food and energy rose a mere 0.7 percent (annualized).

March Price Statistics

    Percent change, last:
    1 mo.a 3 mo.a 6 mo.a 12 mo. 5 yr.a 2006 avg.
Consumer Price Index            
  All items 7.5 4.7 2.4 2.8 2.8 2.6
  Less food and energy 0.7 2.3 1.9 2.5 2.0 2.6
  Medianb 3.3 3.1 3.2 3.5 2.7 3.6
  16% trimmed meanb 3.2 3.3 2.5 2.8 2.3 2.7
Producer Price Index            
  Finished goods 12.5 6.9 5.2 3.2 3.4 1.7
  Less food and energy 0.0 2.3 2.3 1.7 1.4 2.1

a. Annualized.
b. Calculated by the Federal Reserve Bank of Cleveland.
Sources: U.S. Department of Labor, Bureau of Labor Statistics; and Federal Reserve Bank of Cleveland.

The distribution of the price changes of individual CPI components indicated that over half of the index’s weighted components rose at a more moderate pace between 1 percent and 4 percent in March, while a bit over one-quarter of the weighted components rose at rates exceeding 4 percent. This compares to the average price-change distribution over the previous 12 months, in which roughly one-quarter of the index’s weighted components rose between 1 percent and 4 percent, while nearly half rose at rates exceeding 4 percent.

On the other hand, alternative measures of core inflation, including the Median CPI and the 16 percent trimmed-mean CPI, were less sanguine, rising a respective 3.3 and 3.2 percent in March. These monthly increases were not markedly different from the measures’ longer-term trends, which are now between 2¾ and 3½ percent. This month’s modest rise in the CPI excluding food and energy reflects a deceleration in the prices of the services that are included in this measure of core inflation ("core services"), as well as deflation in the prices of the goods that are included ("core goods"). The overall price of core services, which account for over half of the overall CPI, rose 1.4 percent (annualized) in March, significantly below the longer-run trend, which has fluctuated between 3½ and 4 percent in recent months. This rise was modest despite the rather persistently brisk monthly increases in rents (including Owner’s Equivalent of Rent), which constitute over half of core CPI services.

Professional forecasters expect inflation, as measured by the CPI excluding food and energy, to drop from 2.5 percent in 2006 to 2.4 percent in 2007, and to 2.3 percent in 2008. Meanwhile, the year-ahead inflation expectations of households continue to rise; households expect a 4.0 percent rise in retail prices over the next year. Their longer-term inflation expectations, which are correlated with movements in core inflation, ticked up to 3.6 percent in late April, a bit above the 3¼–3½ percent range in which they’ve fluctuated for nearly one year.