U.S. Consumer Price Index Under Control in April

The consumer price index (CPI-U) rose 0.2% last month, down from the 0.3% March increase and less than the 0.3% rise that was generally expected. Year-to-year, prices rose 3.9% which was off the earlier highs of 4.4%.

Less food & energy, consumer prices also were under control last month and posted just a 0.1% uptick. That was half the Consensus forecast for a 0.2% gain. The year-to-year rise of 2.3% was equal to last year's full year gain and down from the 2.5% increase during 2006.

Food & beverage prices provided lift to last month's gain in the CPI with a 0.9% increase. The year-to-year increase of 5.0% was the strongest since 1990. Prices for meats poultry & fish broke out of a several month slumber and rose 0.9% (3.7% y/y). Showing real strength, however, were prices for cereal & bakery products which increased another 1.4%. The y/y rise in these prices of 8.9% was the strongest since 1989. Dairy product prices also were quite firm and rose 0.7%. They surged 11.8% year-to-year.

Energy prices were under control last month and fell slightly. The weakness was due to a surprising 2.0% (+20.7% y/y) decline in seasonally adjusted gasoline prices. (Not seasonally adjusted gas prices rose 5.6% m/m in April and they are up another 6.1% so far in May.) Conversely, fuel oil prices last month surged 3.6% (42.8% y/y) while natural gas & electricity prices also were strong. They posted a 2.5% increase (6.7% y/y).

Core goods prices were unchanged following two consecutive months of 0.1% decline. Lower prices for new & used motor vehicles led the weakness with a 0.2% decline (-0.3% y/y). Prices for household furnishings & operations also fell by 0.1% (-0.1% y/y) after their brief 0.5% March increase. Apparel prices showed the only one month strength with a 0.5% (-0.6% y/y) increase that was the strongest rise since last November.

Core services prices also were under control and ticked up just 0.1%. Shelter prices, which constitute 33% of the total CPI, for the second month rose just 0.1% (2.6% y/y). Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, rose 0.2% (2.6% y/y) and rents rose 0.3% (3.6% y/y). The downside to shelter costs was provided by lodging away from home where prices fell 1.9% (+1.1% y/y). Medical care services prices increased 0.3% (4.7% y/y) and tuition costs surged 0.6% (5.6% y/y). Prices for public transportation fell 0.4% (7.3% y/y) after the 2.5% March rise.

Are Inflation Targets Good Inflation Forecasts? from the Federal Reserve Bank of Chicago is available here.

Has the Behavior of Inflation and Long-Term Inflation Expectations Changed? from the Federal Reserve Bank of Kansas City can be found here.

The National Federation of Independent Business (NFIB) reported that small business optimism during April gained back just more than half of its sharp drop in March. The 2.1% m/m increase to a reading of 91.5 followed a 3.6% March drop that had been to the lowest level since the short, "credit crunch" recession of 1980.

During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.

The percentage of firms actually raising prices again rose m/m, to 20% which was the highest level since August, 2006. During the last ten years there has been a 64% correlation between the y/y change in the producer price index and the level of the NFIB price index. The percentage of firms planning to raise prices also rose to 31%, its highest since late 2005.

Twelve percent fewer respondents expected the economy to improve and only five percent (up from 3% in March) of the respondents expected to raise employment. The latest was near the least since 2003. Twenty one percent of firms had one or more job openings. During the last ten years there has been a 71% correlation between the NFIB employment percentage and the y/y change in nonfarm payrolls.

Nine percent of firms indicated that credit was harder to get. That was near the highest level since 1993 and that was more than double the percentage during 2004.

Only six percent of respondents, up from five percent in March, thought that now was a good time to expand the business, the least since 1982, and expectations for earnings improved just slightly.

About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

The NFIB figures can be found in Haver's SURVEYS database.

Credit, Housing, Commodities, and the Economy is yesterday's speech by Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco and it is available here.

The OECD composite leading indicators show abroad slowing in the OECD area. Only Japan is showing a rebound and that is because it had been much weaker in earlier months. The six month horizons on the bottom of the table shows the CLI trends in the six month periods that the OECD likes to look at them. Weakness and accelerating weakness is the predominate result on this basis of observation.

The chart shows that the depth of the slowdown in the various indicators is comparable to their respective lows in the last recession. Still the cycles are more out of phase at this time with Japan dropping early and already signaling that it may be headed for recovery- may be.

The Indicators are a stark reminder why the IMF has been urging the ECB to hold off in being more aggressive in its inflation fight. Already there is evidence of pending weakness that could help to damp existing inflation pressures.