It's not clear what point the NYT was trying to make in its coverage of the April consumer price report released yesterday. At one point the article asserts that: "But most American households do not have the luxury of excluding gasoline and food from their budgets. The details of the report offered clear signs that much of the country is grappling with rising prices, just as the job market is shrinking and many companies are cutting working hours, eroding the purchasing power of American paychecks." This is a strange comment to make about this particular price report because there actually was not much difference between the 0.2 percent inflation rate shown in the overall CPI and the 0.1 percent rate shown in the core index. Food prices did jump 0.9 percent in April, but energy prices were unchanged. Clearly, this comment does not apply to this price report. The report also included a number of comments suggesting that core inflation is abating as the economy weakens. This is a dubious proposition as a careful examination of the report shows. There are several core components that have been showing price declines or weak price growth, which almost certainly will not continue. Specifically, hotel prices have been falling at a 13.5 percent annual rate over the last quarter. This fall is likely to be at least partially reversed in future months. Car prices have declined at a 2.4 percent annual rate over the last quarter even though they have risen at a 3.6 percent annual rate from December to March in the finished goods index. Finally, medical care costs have risen at just a 1.2 percent annual rate over the last three months. Medical care costs had been rising between 4-5 percent annually. Maybe I missed the reform of health care that suddenly brought medical care costs under control, but I don't think so. Look for higher medical care costs in the month ahead. In short, this report gives good news on the inflation front for now, but look for higher inflation ahead. As always you can get the story in the CEPR price byte.
--Dean Baker
