Consumers are happy with falling prices but the Fed sure isn’t (assuming, of course, prices are really falling).
The Econoday consensus estimate was the CPI would be flat, instead, the BLS reports a decline of 0.3%.
This is the first month-over-month CPI decline since February 2016.
Highlights
Yesterday’s producer price report set up the disappointment for today’s report on consumer prices where the headline fell a very sharp and unexpected 0.3 percent in March. The core rate (less food & energy) fell 0.1 percent which is also unexpected.
Energy prices fell 3.2 percent in the month with gasoline down 6.2 percent. But excluding just energy, prices are still in the negative column, at minus 0.1 percent.
A special negative in the March report is communications which fell a very steep 3.5 percent and reflects cell phone plans which subtracted 1 tenth from both the headline rate and core. Yet other categories are also weak including apparel, down 0.7 percent, and transportation where prices, due to weakness for vehicles, fell 1.4 percent. Housing and medical, two centers of price traction, managed only 0.1 percent gains.
Year-on-year rates also moved lower, to 2.4 percent overall for a sharp 3 tenths decline and to 2.0 percent for the core which is 2 tenths lower. An increase for this closely watched core rate was expected.
The lack of price traction ultimately points to softness in overall demand for consumer goods and services. And though demand in the labor market is very strong, wage improvement has been only marginal. A report like this points to the need for steady monetary stimulus and will push back expectations for Federal Reserve rate hikes.
CPI Month-Over-Month
CPI Percent Change From Year Ago
CPI Components
Reality Check
Supposedly, health care commodities are up 3.9% and health cares services up 3.4% from a year ago. Does anyone believe those numbers?
For someone on Medicaid, Medicare, or those with a huge Obamacare subsidy, perhaps those numbers make sense. For those picking up their own insurance, those numbers likely look like Fantasyland lowball estimates.
The same applies to housing where the BLS does not look at actual home prices but instead looks at Owners’ Equivalent Rent (OER). Anyone looking to buy a home and anyone living in an area where rental units are in relatively short supply will have a completely different measure of price inflation than someone living in much of rural America or areas where there are no significant supply constraints.
Supposedly this all balances out. I assure you it doesn’t. Moreover, most prices other than raw commodities cannot be accurately measured in the first place.
Effect on GDP
From the point of view of a Fed that clearly wants to hike at least twice more this year, these are awful numbers. However, benign price inflation numbers will serve to boost real first-quarter GDP estimates.
Mike “Mish” Shedlock
The “smart money” (bond market) already sniffed what is happening.
Treasury Department has an interest rate tool … plug in Feb 1st or Mar 1st for comparison … yields on long end have come down and overall curve “flattening”.
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/Historic-Yield-Data-Visualization.aspx
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Prices are not declining; but the package size is getting smaller for the same price of the previous larger one. 16oz canned goods are now 12oz. 16oz cereal in now 11.2 oz. Many other examples. Gasoline (at least 10% of a family budget) is up over 08% in a month. 80/20 hamburger has doubled in the past 3 years; fresh vegetables are going through the roof.
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I remember the last days of socialism in my country – all the government statistics were made up … and the people knew it and nobody believe them … I guess this is a sign that some kind of system reset is coming to US as well ( EU is not much better – I don’t believe those inflation numbers, they just don’t make sense – especially about the living expenses ).
The best case scenario would be to decentralize all the current inefficient institutions – banks, government, monopolies by technology solutions, such as block chain … which might be very painful and even impossible …
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Decentralization is the right course of action but cannot happen politically without a revolution. My druthers:
1. A constitutional amendment requiring the federal government to have a balanced budget.
2. All federally chartered banks (those doing cross state and international banking) must be 100% full reserve.
3. Fully nationalize the federal reserve.
4. Let all new issuance of federal currency come from the Treasury, not the fed.
5. Make each state issue its own currency.
6. Have state government owned banks that act as reserve banks for state chartered banks.
7. Let states run themselves as they would like.
That’s real decentralization. You can still have bad problems, but they are limited in scope. And bad actors deteriorate much faster.
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I couldn’t agree more. But then I woke up to the world we have with the bought politicians we voted for and the Great Society edjumacayted populace we swim with.
Pull my finger.
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The oil price increase has impacted too over the past 12 months vs previous.
Expect that to right itself once the Saudis have part floated Saudi Aramco.
Right now they are talking up oil. Big time, with help. A well funded Saudi Arabia is critical to Geopolitical machinations in the area.
Once the float is done, money in the bank, oil will collapse and a deflationary tide hit again.
There are big players on the side of doing whatever they can to achieve a decent Aramco float and to do that they need to convince the world the oil market is tight and prices firm.
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When does the Aramco deal go through ?
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Those figures on medical costs are not even remotely true. Both medicare and Medicaid showed tremendously higher cost increases over the last year. It is entirely fixable, of course, if you acknowledge that the root of the problem is ridiculous/fraudulent cost, and that trying to paper the problem over by making other people pay for it is not the answer.
https://market-ticker.org/akcs-www?post=231949
https://market-ticker.org/akcs-www?post=231909
https://market-ticker.org/akcs-www?post=231959
For a much better no-insurance-needed model, just look at the Surgery Center of Oklahoma, which posts its (much lower, all extras included) fees. https://surgerycenterok.com/
The Surgery Center of Oklahoma, by the way, is very modern and has very good outcomes.
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Deflation would be a blessing for shoppers, if it ever happens. Service inflation is out of control. Its not just medical services, which is zapping the near elderly and the national budget. Education inflation is zapping youngsters, and city budgets. Companies now want $500 just to rake leaves, leaving the elderly in a situation when they get too old to rake their own.
Bank printing is moving the average person backward. Bank printing is also moving cities, states, and the entire country backward. Few can afford the bank’s terrible service inflation.
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The Obamacare tax penalty is pinching retail.
$695 per adult and $347.50 per child under 18 to a maximum penalty of $2,085 per family
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There’s a been a lot of channel stuffing, particularly autos. The fiscal package hasn’t arrived and inventory is backing up. Congress must act quickly to hand out direct stimulus or Obama style tax rebates. Expect the check by Memorial Day at the latest. Also much easier to bridge the budget impasse when the money is going directly to consumers. Buy XLY on weakness for a tweet on rally.
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