Good News on Inflation

Dan North | April 2023
The Consumer Price Index (CPI) rose only 0.1% m/m in March, below expectations of 0.2%. Perhaps more importantly, the y/y rate fell a full 1% from 6.0% in February to 5.0% in March, the lowest since May of 2021. After stripping out volatile food and energy prices, the core rate rose 0.4% m/m putting the y/y rate at 5.6%. However, that’s just above last month’s 5.5% which was the lowest since the peak last September of 6.5%. 
On a mm/m basis, gasoline fell the most, dropping -4.6%, while air fares rose a steep 4.0%. The y/y patterns were the same as gasoline fell -17% while airfares gained 18%.

The Producer Price Index (PPI), which measures the prices that producers receive for their goods and services, delivered very happy news. On a m/m basis, PPI plummeted a dramatic -0.5%, blowing past expectations of 0.0%. It was the biggest decline since just after the pandemic started in April of 2020. The results on a y/y basis were even more startling, nosediving from 4.9% in February to 2.7% in March. That’s a breathtaking descent in one month. Furthermore, over the course of the past year, the PPI has fallen a gigantic 9% from 11.7% last March. Progress is being made.

The core rate (Final Demand Less Foods, Energy, and Trade Services) also delivered inspiration, as the y/y rate fell from 4.8% to 3.7%  Looking at the individual industries on a m/m basis, prices in the energy industry fell -6.4%, driven by a huge -11.7% drop in gasoline prices. Energy also had the largest decline on a y/y basis at -7.2% while construction gained an outsized 15.6% over the year.

The sharp decline in the PPI y/y is significant because. As shown in the chart below the PPI tends to lead the CPI, suggesting that CPI is likely to continue falling as well.
Weekly jobless claims continued their recent rapid ascent, suggesting deteriorating conditions in the labor market and the overall economy.

The banking crisis as measured by emergency borrowing has stabilized, but all that borrowing a few weeks ago was $0, not $312 B.