U.S. CPI Decline Reflects Broad-Based Weakness

Pricing pressure evaporated last month. The Consumer Price Index fell 0.3% during March, the first monthly decline since February 2016. Prices were expected to remain stable in the Action Economic Forecast Survey. The breadth of the price weakness was evident in a 0.1% slip in prices excluding food & energy, where a 0.2% increase had been anticipated. The y/y gain in core pricing power declined to 2.0%, its weakest annual rate of increase since November 2015.

Weakness in core pricing power was most evident in, but not limited to, a 0.3% decline in goods prices less food & energy. Furniture & bedding costs fell 0.8% (-1.7% y/y) after a 0.4% rise. Apparel prices fell 0.7% (+0.6% y/y) and reversed the February increase. Used car prices weakened 0.9% (-4.7% y/y), the third consecutive monthly decline. New car & truck prices eased 0.3% (+0.2% y/y) after a 0.2% drop.  Recreation goods prices fell 0.3% (-3.3% y/y), led by a 0.8% decline (-18.9% y/y) in television prices. To the upside, household appliance prices rose 0.5% (-2.7% y/y) following a 0.4% rise. In the medical care sector, goods prices gained 0.2% (3.9% y/y) following a 0.2% decline.

Prices in the service sector also were weak. A 0.1% slip (+2.9% y/y) followed four straight months of 0.3% increase. The decline mostly reflected a 5.0% drop (NSA) in telephone services prices (-7.8% y/y). Other service price categories showed minimal strength. A 0.1% rise in shelter costs (3.5% y/y) followed six years of stronger monthly increases. Owners' equivalent rent of primary residences gained 0.2% (3.5% y/y), but the cost of lodging away from home fell 2.4% (+0.4% y/y). Medical care services prices ticked just 0.1% higher (3.4% y/y) after four months of 0.2% increase. Transportation services prices increased 0.4% (3.8% y/y) following four months of stronger increases. Recreation services prices rose 0.2% (3.5% y/y) after a 0.9% rise. Tuition & other school fees remained steady (2.4% y/y).

Energy prices exhibited an outsized 3.2% decline (+10.9% y/y) that followed a 1.0% fall. It was paced by a 6.2% drop in gasoline prices that still were 19.9% higher y/y. Fuel oil & other fuel prices fell 4.1% (+17.2% y/y). Natural gas prices eased 0.8% (+10.3% y/y) following two months of 1.5% increase. Electricity costs slipped 0.1% (+1.6% y/y) after a 0.8% rise.

Food prices were the only major category where consumer prices rose. A 0.3% increase (0.5% y/y) was the strongest increase since September 2015. Fruit & vegetable prices surged 1.6% (-1.8% y/y) after a 0.7% rise. Meat prices jumped 0.7% (-2.3% y/y) following a 0.3% increase. Cereal & bakery product prices rose 0.3% (-0.4% y/y) and the cost of eating out rose 0.2% (NSA, 2.4% y/y) for a second month. This strength was accompanied by a 1.8% decline (-21.8% y/y) in egg prices. Dairy products prices fell 0.6% (+0.2% y/) following two months of 0.8% increase. Nonalchoholic beverage prices eased 0.1% (0.2% y/y) following a 1.5% jump.

The consumer price data is available in Haver's USECON database while detailed figures can be found in CPIDATA. The expectations figure is from Action Economics and is found in the AS\1REPNA database.

The Large Unmet Demand for Housing from the Federal Reserve Bank of Kansas City can be found here.