That is how most media accounts treated the March data for the consumer price index. It is not clear that this view is accurate. The overall inflation rate for the month was 0.3 percent, while the core showed just a 0.2 percent rise. While this is in fact a very moderate pace, there were a number of anomalies in the data which held the rate down. The most obvious were a 1.3 percent decline in apparel prices and a 0.6 percent drop in hotel prices. Both components are very erratic and are likely to be reversed in future months. In addition, medical costs reportedly rose at just a 0.1 percent rate, well below its recent trend. Even tobacco prices reportedly fell (albeit by just 0.1 percent), a decline that is unlikely to be repeated given policy efforts to raise tobacco prices. There were no obvious anomalies on the other side. Furthermore, prices at earlier stages of production are rising rapidly. The overall finished goods index rose 1.1 percent in March. It has risen at a 10.2 percent rate over the last year. The core index rose just 0.2 percent in March, but this followed two months of more rapid increases. Over the quarter, the core finished goods index has risen at a 5.0 percent annual rate while the core finished consumer goods index rose at a 5.5 percent rate. The overall intermediate goods index rose 2.3 percent in March, while the core index rose 1.1 percent. The price increases stem largely from rising import prices and rising commodity prices world-wide. It seems unlikely that these price increases will not eventually show up in the consumer price index, given the slowdown in productivity growth in recent years. Over the last three and a half years productivity growth has averaged less than 1.7 percent annually, almost the same rate as during the slow growth years from 1973-1995. As always, you can get the real inflation story in CEPR's price byte.
--Dean Baker
