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Consumer Prices Were Lackluster in March

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Consumer prices in March, released today, showed weaker-than-expected growth. The headline Consumer Price Index rose 0.1 percent in March from February. Even though it is the fastest monthly growth since December 2015, it was lower than economists’ expectations.

Energy was obviously a big contributor to the CPI growth for the month. Energy prices climbed 0.9 percent last month, the biggest monthly growth since May of last year. Looking into April, crude oil prices have continued to rise. WTI crude oil has climbed from the March average of $38.04 to $42 a barrel today. If this trend continues throughout the rest of the month, we can foresee energy will again drive consumer price growth in April.

The lower-than-expected consumer prices last month mainly came from food and apparel. Food prices were down 0.2 percent in March, a fairly big monthly decline but nothing striking. Food prices are known for being volatile.

Apparel has a more shocking story. It skyrocketed 1.6 percent in February, the biggest monthly growth in the past 7 years, then free-fell 1.1 percent last month. It was as if a conservative grandmother suddenly decided to go bungee jumping: It would be hard to predict her behavior next. So it for apparel prices in April.

Services also grew at weaker rates than usual in March. It could be driven by stronger supply and lower consumer demand. But all this could be adjusted in the short term.

It’s worth noting that core CPI in the medium term has continued to grow strongly. Core CPI rose an annualized 2.6 percent over the previous three months and 2.2 percent during the past 12 months. If the Fed is able to look through month-to-month volatility in consumer prices, its outlook for inflation over the medium term should stay positive, supporting a second rate increase in June or September.

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