Inflation Increases in March but Many CPI Components Show Slowing Price Growth
Peter Bernstein, Chief Economist, pbernstein@rcfecon.com, 312-431-1540 x1515
The Current Situation
A surge in food and energy prices pushed inflation to a 40-year high of 8.6% in March vs. a year earlier, with overall consumer prices rising 1.2% just in the month of March, the largest one month increase since before the Great Recession. A silver lining is that core inflation (excluding food and energy prices) was up only 0.3% in March, a decline from the 0.5% increase in February. A possible concern, however, is producer prices which are up 11.2% over the past year.
The surge in inflation is clearly a recent phenomenon as 2021 began with year-over-year price increases below 2%. The hope that the increase in inflation would prove transitory was dashed as price increases began accelerating again in the fall of 2021. Since the start of 2021, overall inflation has been consistently higher than core inflation. The distinction between overall and core inflation is one method used to understand the drivers of inflation.
A better understanding of inflation can be found by examining the behavior of a broader range of individual price series beyond the simple breakdown of core prices vs. food and energy prices. To that end, RCF presents our inaugural Monthly Inflation Scorecard which tracks individual components of the Consumer Price Index.
RCF’s Inflation Scorecard
RCF’s Inflation Scorecard is based on analysis of 20 different price series comprising 98% of the total consumer price index. Each of these price series represents a portion of the CPI based on household spending patterns. For example, food purchased for at-home consumption is about 8% of the typical consumer’s budget; it has a weight of 8.17 out of a total index of 100 as detailed later in this report.
Our scorecard presents two metrics to track month-to-month price increases.
The first metric is the share of the index for which inflation in the most recent month is rising (greater than the prior month inflation) vs. the share of the index for which inflation is falling (lower than the prior month). In March, 31% of the CPI components (weighted by their share of the CPI) showed rising inflation, but 43% of the components showed falling inflation. The portion of the CPI with falling inflation is the second highest over the past year. This indicates that across the wide range of goods and services, inflationary pressures are starting to ease.
Our second metric is the share of the index for which the most recent month’s inflation exceeded 0.2%, a monthly rate that corresponds closely to the Federal Reserve’s target inflation rate of 2% per year. In March, 76% of the price series (weighted by their share of the total CPI index) exceeded the target.
Thus, while our first metric suggests that inflation is decelerating, our second metric demonstrates that the prices of most goods and services are still rising faster than the Fed’s target.
RCF Inflation Scorecard: March 2022
Note: The total weight calculations are tabulated as the sum of the weights of all CPI components in the metric. For example, the total weight of the price series for which the March monthly price increase exceeded 0.2% is 75.8, or approximately 76% of the CPI index.
Analysis of Individual Components of the Consumer Price Index
Sources: Bureau of Labor Statistics and RCF Calculations 1. Inflation direction indicates whether inflation in March was higher or lower than inflation in February.
Highlights:
- Food-at-home prices increased 1.5% in March, even greater than the 1.4% price increase in February.
- Motor fuel (primarily gasoline) prices surged an astounding 18.3% in March. Even though motor fuel represents less than 4% of the CPI index, the large increase was responsible for more than half of the 1.2% increase in overall consumer prices during the month.
- Used car and truck prices, which are up 35% vs. a year ago, fell 3.8% in March. This illustrates the importance of looking at month-to-month changes as they give a more accurate assessment of recent conditions.
- The 0.4% increase in rents in March might appear inconsistent with reports of sharply rising rents across the nation. It is important to remember, however, that those rising rents reflect new leases whereas most renters see no month-to-month increase as their rent is usually constant for the term of their lease. But recent increases in new lease prices could affect the future rent component of the CPI, something that we will monitor in future reports.
- Household energy/utilities prices rose 3.3% in March and are up 25% vs. a year ago, a further reflection of the energy-driven aspect of inflation.
- Two other rapidly rising price components were lodging away from home and public transportation, which includes airfares. These changes likely reflect the increase in travel as the Covid-19 pandemic subsides.
