Spring heat wave

April 10, 2024

US inflation came in hot. The consumer price index (CPI) rose 0.4% in March, the same increase as February and above the consensus expectation for a 0.3% increase. Higher energy prices and shelter costs contributed to about half of the rise in inflation, similarly to last month. Gasoline prices rose 1.7% and housing costs increased 0.4%. The CPI index rose 3.5% from a year ago in March, up from 3.2% in February.

The core CPI, which excludes food and energy, rose 0.4% in March, the same as February. That was also above the consensus expectation for a 0.3% increase. Core CPI rose 3.8% from a year ago in March, stuck at the same pace as February. Major goods prices continue to fall. Prices for big-ticket items such as new vehicles, appliances and furniture declined. The disappointment in the report came from the services sector which showed rising inflation.

The supercore services measure, which excludes shelter and energy costs, rose 0.7%, a pickup from 0.5% in February. The supercore increased 4.8% from a year ago in March, up from 4.4% in February. The three-month and six-month annualized measures accelerated further with the former rising 8.2% from a year earlier in March from 6.9% in February. Earlier evidence pointed to inflation being bumpier but the latest data suggest it is becoming stickier. Given that the services sector is a much larger share of the economy, the latest inflation news is a big disappointment to Federal Reserve officials who expected to see further progress.

Medical services and insurance costs continued to fuel higher inflation. Hospital costs rose 1% while motor vehicle insurance increased 2.6%.

Travel related costs were muted after months of increases. Airline fares fell 0.4% as hotels were unchanged in March. Still, the number of people out on vacation remains elevated, the fourth highest March in the series; TSA throughput continues at high levels.

Several of the pass-through components in CPI that feed into the personal consumption expenditures (PCE) index reveal elevated inflation. On a not-seasonally adjusted basis, there was a large increase in in-home elder care, up 5.9%, car and truck rental, up 5.7% and veterinary services, up 2.5%. We will have a better measurement for inflation when PCE is released later this month; it is the Fed's preferred measure of inflation. Several components of PPI, due tomorrow, also feed into the calculation of PCE.