The BLS reports the CPI for All Items rose 0.2% in April as shelter, energy, and food indexes all increase.

The 0.2% increase was in line with the Econoday Consensus estimate, but the Econoday parrot was not happy.

Prices did not go up enough to please our resident parrot who is always happy when consumers have to spend more money to get less.

Strength in Wednesday’s import & export price report and Thursday’s producer price report proved to be head fakes as consumer prices failed to show much traction in April, rising an as-expected 0.2 percent at the headline level and managing only a 0.1 percent gain less food & energy which misses Econoday’s consensus by 1 tenth. Year-on-year rates are not impressive, at 2.2 percent overall which is down 2 tenths from March with the core down 1 tenth from March at 1.9 percent.

Softness in the details is striking including continued price weakness in medical care, down 0.2 percent in the month, and continuing contraction for communications where providers are in a price war. Apparel is down for a second month with transportation showing only a fractional gain after two prior months of contraction. Owners’ equivalents rent, which is closely watched in gauging the housing sector, rose only 0.2 percent.

This report is not only bad news for policy makers who are trying to reflate the economy but also businesses which are paying higher costs for inputs but apparently not getting much price recovery on the selling side. Lack of consumer price pressure will not turn up the heat on the Federal Reserve to raise rates though a hike, at least for now and despite this report, is the expectation for the June meeting.

CPI Month-Over-Month

  • The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in April on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 2.2 percent before seasonal adjustment.
  • Increases in indexes for shelter, energy, tobacco, and food all contributed to the monthly increase in the all items index. The energy index rose 1.1 percent, with all 3 of its major component indexes rising. The food index rose 0.2 percent, mostly due to a sharp increase in the index for fresh vegetables.
  • The index for all items less food and energy rose 0.1 percent in April after declining in March. The shelter index increased 0.3 percent, and the tobacco index increased sharply over the month. However, many indexes declined in April, including those for wireless phone services, medical care, motor vehicle
    insurance, apparel, used cars and trucks, recreation, and new vehicles.
  • The all items index rose 2.2 percent for the 12 months ending April. While a smaller increase than the 2.4 percent rise for the 12 months ending March, this is still a larger rise than the 1.7 percent average annual increase over the past 10 years. The index for all items less food and energy rose 1.9 percent over the last 12 months; this compares to a 1.8 percent average annual increase over the past decade. The energy index rose 9.3 percent over the last year, while the food index increased 0.5 percent.

CPI Year-Over-Year

Table of Changes

Inflation-loving parrots and economic illiterates who believe there is a benefit to inflation were not happy with today’s report.

Economic Challenge to Keynesians

Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.

I have commented on this many times and have been vindicated not only by sound economic theory but also by actual historical examples.

  1. My article Deflation Bonanza! (And the Fool’s Mission to Stop It) has a good synopsis.
  2. My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.

There is no answer because history and logic both show that concerns over consumer price deflation are seriously misplaced.

BIS Deflation Study

The BIS did a historical study and found routine deflation was not any problem at all.

Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.

It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.

Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

Meanwhile, economically illiterate writers bemoan deflation, as do most economists and central banks. The final irony in this ridiculous mix is central bank policies stimulate massive wealth inequality fueled by soaring stock prices.

Mike “Mish” Shedlock