Mixed Bag on Inflation via CPI Reading

The U.S. Department of Labor has released its April inflation reading at the consumer level. Tuesday’s report was the Consumer Price Index (CPI), came in at 0.4% on the headline report. Reuters News and Bloomberg had the consensus estimate at 0.3%, with Dow Jones (Wall Street Journal) looking for a gain of 0.2%.

Then there is the core CPI, which excludes food and energy. This measure rose by 0.2%, in line with expectations.

Where the report gets wacky is in the year-over-year readings. The headline CPI was up 1.1% from April of 2015, but the core reading was up a sharp 2.1% from a year earlier.

As a reminder, the Federal Reserve is hoping for 2.0% to 2.5% inflation in order to justify a hike to the fed funds level again. Without inflation, the weaker economic numbers are preventing the Fed from taking interest rates up from what is still way too close to zero.
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While the results on inflation may be encouraging for those who hope for inflation, the reality is that the bulk of the price gains were tied to a 10% gain in the price of gasoline. Rising oil will do that. Outside of gasoline and transportation/energy-related costs, inflation remains tame.

Another area of weakness remains in apparel, despite rising import prices and a weaker U.S. dollar. Prices for services were up, but housing/rent prices were effectively flat.

Again, the Federal Reserve is looking for inflation to get back to the 2.0% to 2.5% level to justify interest rate hikes, even if the overall economic readings remain flat to weak. That just is not seen on a grander scale aside from gasoline, and gasoline prices remain way down from a year ago.