U.S. Consumer Price Index

Inflation Rises to 2.4 Percent

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The price of tennis balls, as shown above in a Walmart store, increased three months ago for the first time in 30 years from $1.97 a can.

Core inflation, the CPI less food and energy, jumped over the Fed's 2.0 percent threshold to 2.1 percent, led by an increase in motor vehicle insurance.

Consumer prices rose 2.4% in March from a year earlier, according to the Labor Department, which released its monthly Consumer Price Index (CPI) figures earlier today.  Just as important was a rise in core inflation, overall inflation less the more volatile food and energy prices, which increased to 2.1%.  Core prices had been hovering around 1.8% for the past year.

The increase in overall inflation was largely due to a sharp rise in energy prices led by fuel oil, which surged 20 percent and gasoline prices which rose 11.1% from the same time the previous year.  Overall, inflation now stands at its highest point since reaching the 2.7% mark in February of last year.  Core inflation reached its highest point at 2.2% that same month.

The increase in non-food and energy items was led by a significant 8.9% rise in car insurance followed by a 5.9% increase in cigarettes and other tobacco products.  Healthcare prices continued to rise as the price for hospital services surged 5.2% from a year earlier.  Meanwhile, the price of going to the doctor fell slighlty by 0.8%.  Indexes for apparel, communication and used cars and trucks all declined over the month, according to the Bureau of Labor Statistics. 

Markets seemed to react negatively to the data as the Dow Jones Industrial Average was down around 100 points mid-morning as was the Nasdaq and the S&P 500, but some of the market problems were reportedly due to unease surrounding an impending U.S. military strike on Syria in response to that country's use of chemical weapons over the weekend.

The Core Price Index, as Fed Chairman Jerome Powell termed it in his press conference two weeks ago, is now over the Fed target, but still well within the target range as the nearby graph illustrates.  More importantly, Powell's comment suggests that the Fed will pay more attention to the Core CPI as a gauge of inflation rather than the Consumer Price Expenditures Index, which was the preferred inflationary gauge used by the Fed under former Chair Janet Yellen.

The sharp 0.3% increase is a sign that years of sluggish price growth could finally be coming to an end thus pushing inflation to a higher level more quickly than anticipated.  The 0.3% rise is the steepest since before 2014 as all but four of the previous upturns or downturns in that period were by only 0.1%.

In his first press conference March 21st, Federal Reserve Chairman Jerome Powell seemed to anticipate a rise in prices as the result of "unusual price declines" from nearly a year earlier falling out of the Labor's Departments calculation.  "In coming months, as those earlier declines drop out of the calculation, inflation should move up closer to 2 percent and stabilize around that level over the medium term," said Powell.  

Powell went on to say the Fed will try to prevent persistent price deviations from 2 percent in either direction.