Annual Inflation Accelerates on Monthly Decline


The Bureau of Labor Statistics reported that consumer inflation fell by 0.1 percent over the month of March 2018 following a 0.2 percent increase in February. This is first monthly decrease since May 2017. Energy prices fell by 3 percent over the month as gasoline prices were 4.9 percent lower than their level in February. In contrast, core CPI, which excludes energy and food prices, rose by 0.2 percent similar to its rate of growth in February.

Over the past twelve months, the CPI rose by 2.4 percent, faster than the 2.3 percent rate of growth recorded last month. After ten consecutive months in which core CPI rose by either 1.7 or 1.8 percent, the March recording of core CPI showed acceleration to 2.1 percent.

The March release presents an anomaly where headline consumer prices fell over the month, but accelerated over the past 12 months. Although CPI fell over the month of March 2018, it fell even more over the month of March 2017, by 0.2 percent. The figure above illustrates that the deceleration in the twelve-month change in the CPI reflected monthly growth rates in 2017 that were below the monthly growth rates in 20116. The acceleration over the past months in the 12-month inflation measure reflects monthly growth rates that have are above the rates in the same month one year ago.

This indicates that a return to the monthly growth rates that prevailed in 2016 would lead to an acceleration in the 12-month growth in consumer prices as the lower monthly changes between February 2017 and July 2017 drop out of the year-over-year inflation calculation. Looking forward, if more normal and steady rates of monthly growth in the CPI continue to prevail then the 12-month change in CPI inflation would then decelerate.

The BLS release also reported that rental prices grew by 3.6 percent over the past twelve months, faster than the 2.1 percent rate of growth in core CPI. However, as the chart above illustrates, while real growth in rental prices, growth after adjusting for inflation, continues, its pace continues to slow. After peaking at 2.1 percent in August 2017, real rental price growth has begun to decelerate. The figure above illustrates that the recent deceleration in rental prices partly reflects a slowdown in rental prices, but also an acceleration in core inflation.


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