Washington: The core consumer price index (CPI), a key measure of U.S. consumer prices rose by less than expected in April on lower used-car and apparel costs, testing the Federal Reserve’s message that muted inflation will prove transitory while giving President Donald Trump more ammunition to argue for an interest-rate cut.
The core consumer price index, which excludes food and energy, rose 0.1% from the prior month, missing estimates, and 2.1% from a year earlier as forecast, according to a Labor Department report Friday. The broader CPI rose 0.3% monthly and 2% annually, with both figures less than projected.
U.S. core and headline price gains both missed estimates on a monthly basis in April
The data suggest a sustained pickup in inflation may remain elusive for some time despite the lowest jobless rate in 49 years and consistent wage gains. However, prices could get a boost in coming months after Trump increased tariffs on Chinese imports Friday.
Trump tweeted 31 minutes after the inflation report that the CPI was “really good, very low inflation! We have a great chance to ‘really rock!”’ The president has pressured the Fed for a reduction in interest rates to supercharge the economy amid muted inflation, even as the tight labor market has raised wages and lowered unemployment.
The 10-year Treasury yield briefly slipped to a session low after the CPI report and fed funds futures showed a slight increase in odds for a 2019 rate cut by the central bank. The dollar fell.
“The Fed tells us it’s transitory, but there’s persistent softness going on that we have to remain watchful of,” said Stephen Gallagher, chief U.S. economist at Societe Generale SA. On the declines in used-car and apparel prices, “both of these are thought to be transitory, but they’re still weighing pretty heavily on the core readings and an outcome is the core reading is pretty low.”
The three-month annualized change in the core gauge was 1.6%, the lowest in almost two years.
Energy prices climbed 2.9% from the prior month as gasoline prices jumped 5.7%. Food costs decreased 0.1%, while medical care costs were up 0.3%.
At the same time, apparel prices dropped steeply for a second month, falling 0.8% in April after a 1.9% March drop that was the most since 1949. Apparel only accounts for just over 3% of the CPI but a new methodology in March had dragged down the overall index.
Fed Chairman Jerome Powell has suggested the too-low inflation will prove temporary as it is driven by “transitory” factors, indicating at his latest press conference that the central bank is not leaning toward either a cut or a hike in borrowing costs.
Fed officials typically focus on the less-volatile core inflation measure to gauge underlying trends. Their separate preferred index — which is linked to consumer spending tallied by the Commerce Department and tends to run slightly below the CPI — rose 1.5% in March from a year earlier, below the 2% target, as core prices eased to a one-year low of 1.6%. The April figures are due May 31.
Friday’s report showed used-car prices slumped for a third month, dropping 1.3%, the most since September, while new vehicle prices rose 0.1%, less than the prior month.
Shelter costs, which make up about a third of total CPI, continued to underpin inflation. The index climbed 0.4% for a second-straight month, with owner’s-equivalent rent rising 0.3%.
A separate Labor Department report Friday showed how subdued inflation is affecting consumer spending power. Average hourly earnings, adjusted for price changes, climbed 1.2% in April from a year earlier, following 1.3% in March.
Economists consensus survey had forecast the core gauge would rise 0.2% from the prior month and 2.1% from a year earlier, with corresponding gains of 0.4% and 2.1% projected for the broader index.
The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60 percent of the index covers the prices that consumers pay for services ranging from medical visits to airline fares, movie tickets and rents.
Consumer Price Index (CPI)
The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services. The CPI reflects spending patterns for each of two population groups: all urban consumers and urban wage earners and clerical workers. The all urban consumer group represents about 93 percent of the total U.S. population. It is based on the expenditures of almost all residents of urban or metropolitan areas, including professionals, the self-employed, the poor, the unemployed, and retired people, as well as urban wage earners and clerical workers.
Not included in the CPI are the spending patterns of people living in rural nonmetropolitan areas, farming families, people in the Armed Forces, and those in institutions, such as prisons and mental hospitals.
Consumer inflation for all urban consumers is measured by two indexes, namely, the Consumer Price Index for All Urban Consumers (CPI-U) and the Chained Consumer Price Index for All Urban Consumers (C-CPI-U).
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is based on the expenditures of households included in the CPI-U definition that meet two requirements: more than one half of the household’s income must come from clerical or wage occupations, and at least one of the household’s earners must have been employed for at least 37 weeks during the previous 12 months.
The CPI-W population represents about 29 percent of the total U.S. population and is a subset of the CPI-U population.
The CPIs are based on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 75 urban areas across the country from about 5,000 housing units and approximately 22,000 retail establishments (department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments).
All taxes directly associated with the purchase and use of items are included in the index. Prices of fuels and a few other items are obtained every month in all 75 locations.
Prices of most other commodities and services are collected every month in the three largest geographic areas and every other month in other areas. Prices of most goods and services are obtained by personal visits or telephone calls by the Bureau’s trained representatives.