Inflation Jumps to 2.6%

The Consumer Price Index increased faster than expected in March according to the Labor Department (BLS).

  • M-O-M: The CPI for All Urban Consumers increased 0.6% in March on a seasonally adjusted basis.
  • Y-O-Y: Over the last 12 months, the all items index increased 2.6% before seasonal adjustment.

BEAT THE STREET: Expectations were a 2.5% CPI increase according to economists surveyed by The Wall Street Journal (WSJ)

The gasoline index continues to lead the way with a 22.5% jump in March which accounted for nearly half of the seasonally adjusted increase in the all items index. Energy prices were up across the board with the index up 13%.

  • Other big gainers include used cars and trucks (+9.4%), Tobacco products (+6.3%), Dairy & related products (+5.4%), physician services (+5.3%), and fruits & vegetables (+3.8%).

Airline fares continue to be the biggest losers year-over-year with a 15.1% drop year-over-year. However, the trend has reversed as airline fares did increase by 0.4% month-over-month.

  • Other decreases include car insurance (-2.5%), apparel (-2.5%), medical care commodities (-2.4%), and transportation services (-1.6%)

MISLEADING NUMBERS: Justin Lahart & Neil Irwin both wrote yesterday on the dangers of looking at the annual inflation rate.

  • NEIL IRWIN: “But March 2020 was not a normal month. The pandemic shut down huge parts of the economy virtually overnight. It would be hard for that kind of experience not to create distortions in economic data that make things hard to parse.” (New York Times)
  • JUSTIN LAHART: “Its inflation reports showed that consumer prices slipped in March last year from a month earlier, and then continued to fall over the following two months. With the March inflation report released on Tuesday, those reports are now hitting their anniversary.” (Wall Street Journal)

WHY THIS MATTERS TO HOUSING: The Federal Reserve has given itself some breathing room when they announced in August a change to how they will measure inflation (CNBC). However, if inflation really takes off the Fed would be forced to raise rates which impact al types of borrowing including mortgages.