The Inflation Update: March 2003
Stephen G. Cecchetti
16 April 2002
Deflation-mongers
will no doubt look at this morning's CPI report and point out that while the all
items CPI rose 4.0% (at an annual rate) from February to March, removing food
and energy left the index unchanged!
And over the last 12 months, the CPI excluding food and energy rose less
than 1¾%, its
lowest reading in years.[1] The median CPI, computed by the Federal
Reserve Bank of Cleveland, rose an extremely modest 1.1% (a.r.) for the month,
and is up 2.6% over the last 12 months.
But while inflation is low and
still falling, I continue to believe that we are not poised on the deflation
precipice. What is true is that the
there is virtually no persistent inflationary pressure. In the past I have
pointed to housing and medical care are good indicators of future trends in the
overall index. Looking there, we see
that this month, owner equivalent rent shows an increase of only 1.1% (a.r.),
well below it's recent 3% trend.
Meanwhile medical care costs increased 2.1% (a.r.) for the month, less
than half the 4.3% rise of the prior 12 months. And goods prices continue to fall, albeit at a somewhat slower
rate. Core goods (or commodities
excluding food and energy commodities), fell 0.8% (a.r.) from February to
March, a slightly more modest decline than the 1.4% fall over the last year. It is possible that the recent dollar
depreciation is starting to have an impact, but this morning's report is
certainly not conclusive evidence.
My impression from all these
data is that trend inflation is now below 2%.
But how long will it stay there? With interest rates at historic lows,
it’s hard to believe that we won’t start seeing some inflation relatively
soon. In the meantime though, inflation
is not going to play much of a role in the policy debate. Instead, the FOMC is likely to continue to
focus their attention on growth and employment, hoping for signs that the
economy will gain momentum. But steady
growth above the 3% threshold will probably not return until businesses see an
improvement in their prospects. Only then will new hiring and investment become
profitable. I hesitate to speculate on
whether the end of the conflict in Iraq is enough to finally set those
activities in motion, or whether things like dollar depreciation and SARS will
continue to sideline business expansion plans.
One thing seems for sure, however, and that is that the FOMC is not likely
to raise interest rates any time soon.
Consumer Price Inflation, Various Measures
(Through March 2003, all data s.a. at an annual rate)
|
Previous |
All
Items CPI |
CPI
ex Food & Energy |
Median
CPI |
|
1
Month |
4.0 |
0.0 |
1.1 |
|
3
Months |
5.3 |
0.8 |
2.0 |
|
6
Months |
3.3 |
3.0 |
2.2 |
|
12
Months |
3.0 |
1.7 |
2.6 |
|
12
Months ending |
1.4 |
2.4 |
3.7 |
For previous updates, as well as my occasional essays on current policy issues,
Please
visit my home page:
Steve Cecchetti's
Homepage
(Note: If you have trouble viewing the
tables, you may prefer looking at them in html at
The
Inflation Update: March 2003
or you can download the pdf file
The
Inflation Update: March 2003 PDF Format
These also include the table used to construct the Median CPI.)
Detail for Computation of the Median CPI
|
|||
March 2003 |
|||
|
Component |
Annualized 1-month % change |
Relative Importance |
Cumulative Relative Importance |
|
Fuel oil and other fuels |
180.5 |
0.2 |
0.2 |
|
Gas (piped) and electricity |
79.7 |
3.5 |
3.7 |
|
Motor fuel |
59.8 |
3.5 |
7.2 |
|
Men's and boys' apparel |
26.0 |
1.0 |
8.2 |
|
Car and truck rental |
13.1 |
0.1 |
8.4 |
|
Used cars and trucks |
7.5 |
2.0 |
10.4 |
|
Alcoholic beverages |
7.4 |
1.0 |
11.4 |
|
Motor vehicle insurance |
6.8 |
2.5 |
13.9 |
|
Public transportation |
6.7 |
1.2 |
15.1 |
|
Water and sewer and trash collection
services |
6.4 |
0.9 |
16.0 |
|
Education |
5.6 |
2.9 |
18.8 |
|
Cereals and bakery products |
5.5 |
1.3 |
20.2 |
|
Personal care services |
5.1 |
0.9 |
21.1 |
|
Medical care commodities |
4.7 |
1.4 |
22.5 |
|
Miscellaneous personal services |
4.4 |
1.6 |
24.0 |
|
New vehicles |
2.6 |
4.8 |
28.9 |
|
Rent of primary residence |
2.4 |
6.6 |
35.4 |
|
Food away from home |
2.0 |
6.3 |
41.7 |
|
Medical care services |
1.2 |
4.6 |
46.3 |
|
Owners' equivalent rent of primary
residence |
1.1 |
22.5 |
68.8 |
|
Recreation |
1.1 |
6.0 |
74.8 |
|
Meats, poultry, fish, and eggs |
0.0 |
2.3 |
77.1 |
|
Other food at home |
0.0 |
1.8 |
78.9 |
|
Infants' and toddlers' apparel |
0.0 |
0.2 |
79.1 |
|
Motor vehicle maintenance and repair |
0.0 |
1.4 |
80.5 |
|
Motor vehicle fees |
0.0 |
0.6 |
81.0 |
|
Personal care products |
0.0 |
0.7 |
81.7 |
|
Fresh fruits and vegetables |
-0.5 |
0.9 |
82.7 |
|
Dairy and related products |
-0.7 |
0.9 |
83.6 |
|
Tenants'
and household insurance |
-1.0 |
0.4 |
83.9 |
|
Processed fruits and vegetables |
-1.1 |
0.3 |
84.2 |
|
Nonalcoholic beverages and beverage
materials |
-1.7 |
0.9 |
85.1 |
|
Motor vehicle parts and equipment |
-3.3 |
0.4 |
85.6 |
|
Miscellaneous personal goods |
-3.8 |
0.2 |
85.8 |
|
Household furnishings and operations |
-6.4 |
4.7 |
90.5 |
|
Communication |
-7.6 |
3.0 |
93.5 |
|
Women's and girls' apparel |
-8.1 |
1.7 |
95.2 |
|
Jewelry and watches |
-10.7 |
0.4 |
95.5 |
|
Tobacco and smoking products |
-13.1 |
1.0 |
96.5 |
|
Lodging away from home |
-14.4 |
2.6 |
99.1 |
|
Footwear |
-25.1 |
0.9 |
100.0 |
[1] Changes in the methodology for constructing the CPI make comparisons difficult. Data available using current methods go back only to 1978, and the current reading is below any since then. Looking at the official numbers, which are not really comparable from year to year, we see last time the 12-month change in the CPI excluding food and energy was below this month’s level was October 1958.