USA: consumer price index

  • The overall CPI rose by 0.5% m-o-m in March, in line with consensus expectations. Food prices were up a strong 0.8% whilst energy prices jumped further up by 3.5% m-o-m (gasoline surged 5.6%).
  • Core CPI was up by 0.1% m-o-m (0.135% to be precise), slightly below consensus estimates (+0.2%).
  • Over the past three months however, the core CPI has increased by 2.0% annualised, which is not such a high reading in itself, but nevertheless a much higher figure than over the preceding three months (0.8%).

Today’s report confirms that prices for core goods and services are starting to react to the economic recovery. Our proprietary leading model of core inflation – which is actually a conjugation of two models, one on shelter inflation and one on core inflation excluding shelter – points to a further pickup in core inflation over the rest of 2011, although a fairly limited one. We continue to believe that core inflation will bounce back up further modestly over the coming few months. Our forecasts of core inflation reaching some 1.6% y-o-y by year-end remains unchanged. Although this kind of further acceleration looks pretty muted, with monetary policy still extremely loose, economic growth robust, oil prices surging and headline inflation on the rise, even a relatively modest further pickup in core inflation may well lead to increasing inflationary fears in the financial markets over the coming few months.

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