Inflation Expectations Build with the Consumer Price Index Rising Again in March

Rising energy and food prices pushed the Consumer Price Index higher in March—extending the run to 9 consecutive months of growth. The Consumer Price Index (CPI) for All Urban Consumers, released today by the Bureau of Labor Statistics (BLS), rose 0.5% (SA) in March, with the year-over-year increase at 2.7% (NSA).

Energy and food prices continue to be the main driver of the CPI growth, with the energy index up 3.5% and the food index up 0.8% in March.  Together they accounted for three quarters of the growth in the all items index. The gasoline index continued to rise strongly, up 5.6% in March and 14.4% for the first quarter of 2011. Fuel oil also contributed to the rise in the energy index, up 6.2% in March and a total of 37.2% for the past six months. Food prices rose 0.8% for the month and were up 2.9% from a year earlier. Core CPI which excludes the volatile food and energy prices rose a modest 0.1% in March.  It has been inching up steadily for the past 5 months, but the overall gains have been moderate, with a year-over-year increase in core CPI of 1.2%.

 The shelter index, housing’s component of the CPI, continued its steady rise, up 0.1% in March—its sixth consecutive month of growth. Rent from tenanted houses and owners’ equivalent rent inched up, both increasing 0.1% in March. Overall the rental component of the CPI has risen 0.4% for the quarter and 1.2% year-over-year.

With the recent energy driven gains, the CPI for All Urban Consumers is up 1.3% (SA) in the first quarter of 2011—an annualized rate of 5.2%—and consumers are becoming increasingly concerned about high inflation in the year ahead.  Both the University of Michigan consumer sentiment and the Conference Board consumer confidence measures fell sharply in March, with inflation expectations the main cause—consumers highlighting rising energy prices as their key concern. However, energy prices appear to be nearing their peak, with future markets indicating energy prices will peak in the next few months, although they are likely to remain high through the second half of 2011 and 2012.  Therefore, NAHB expects the all items index to settle back to moderate growth over the remainder of 2011, with an overall gain of 2.6% for the year. Inflation will remain moderate through 2012, with an annual rate of growth of 1.5%.



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