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Economy in Brief

U.S. CPI Gives Markets a Breath of Pretty Fresh Air
by Robert Brusca April 17, 2007

The 0.1% increase in the CPI in March (annual rate of 0.7%) is just what the CPI needed after back to back monthly increases of 0.23% but, after two such bad reports, this good one can only take the edge off bad trends; it can’t by itself make CPI trends good. For the month, inflation was not widespread; our monthly diffusion counter was at 42.9 for the headline and 42.9 for the core. Both signal that month-to-month inflation fell in more CPI categories than it rose. But both core and headline inflation now show an accelerating three-month pace compared to six months ago.

In the guts of this month’s report we find core goods prices were weak as in the PPI, falling at a 0.9% annual rate in the month. But services prices were moderate too, cutting their pace of increase to a pace of +1.4%. Still over three months core goods prices are rising by 0.4% and core services are at 2.9%. (the service sector is 71% of the core). So while the inflation game is still a tug of war between goods deflation and services inflation, both sectors say inflation pressures eased in the month. Services inflation has seen sequentially lower from 1-year to 6-months and from 6-months to 3-months.

While still high, core service sector inflation trends are cooling across horizons. However, look at the graph and realize how much this has to do with just this last month’s result. Inflation had started another minor uptrend. So while the chart looks benign, the result is still quite reversible.

Core goods prices are showing persisting declines in year/year and six-month rates of change. However, at the three-month horizon goods prices have reversed to show some inflation. So the anti-inflation trend is no longer as uniformly solid as it was.

Consumer Prices: 2007 March Report
Overview: Moderation is Back in Play……
5COLSPAN Year-To-Date 1- Mo --
Quick Summary Yr/Yr 6-Mo AR 3-Mo AR -- 2007 2006 Diffusion --
CPI 2.8% 2.4% 4.7% -- 4.7% 3.7% 42.9 --
Core CPI 2.5% 1.9% 2.3% -- 2.3% 2.6% 42.9 --
Commodity Category
  Mo Annualized
Rate
Annualized Inflation Rate For Last Mo/Mo
Not Annualized
By Expenditure Category Mar 2007 % Weight 3-Mo -- 6-Mo -- Year Mar 2007
All Items 7.5% 100.00 4.7% -- 2.4% -- 2.8% 0.6%
By Economic Group
All: Excl Food & Energy 0.7% 77.10 2.3% -- 1.9% -- 2.5% 0.1%
(Median Increase) 3.1% 100.00 4.4% -- 2.8% -- 2.7% 0.3%
Excl. Energy 1.1% 92.32 2.9% -- 2.2% -- 2.6% 0.1%
Commodities Excl Food & Energy -0.9% 22.77 0.4% (29% of core) -1.1% -- -0.3% -0.1%
Services Excl Energy 1.4% 54.33 2.9% (71% of core) 3.1% -- 3.6% 0.1%
Core CPI less Tobacco 0.7% -- 2.1% -- 1.8% -- 2.4% 0.1%
Food & Energy
Energy 216.3% 7.68 30.9% -- 1.7% -- 6.9% 10.1%
Food 3.4% 15.22 7.3% -- 3.9% -- 3.3% 0.3%
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