On April 12, the Bureau of Labor Statistics said inflation rose at its slowest rate in two years. Excluding volatile food and energy prices, core inflation rose 5.6% on an annual basis, as expected. Grocery prices declined by 0.3% with eggs, which have skyrocketed of late, falling nearly 11% for the month. Energy prices declined 6.4% annually.
Straight Arrow News contributor Larry Lindsey argues that despite all the good news of late, inflation will head back up and continue to be volatile throughout the year.
Well, we’ve been getting some good inflation numbers lately. The CPI — Consumer Price Index — came out. The headline was only 0.1% for the month. If that continued we’d have inflation well under 2% for the year. But if you took out food and energy, the number was 0.4%, which means we’re really having inflation closer to 5%.
Food prices in the supermarkets fell 0.3%. Now, you may not have noticed, but that’s the number the survey people picked up. More important, the price of energy, not just gasoline, but also natural gas, electricity, fell 4.6% in a single month. Well, that was also repeated in the Producer Price Index, which declined last month. Good news, but the entire thing was due to a 6.5% drop in the price of energy. All other goods were up 0.3%, food was up 0.6%. So this should tell us what’s really going on is that, yes, we had good news on inflation but it was all due to a decline in energy prices.
Now, the problem is is that was for March and we know what happened to energy prices in March. They started the month at $80, they fell to $67 and went back up to $75. The average price for a barrel of oil, West Texas Intermediate, last month was $73.20. Now, here’s the problem. It’s already $82.25 here in April. Now, even if we had no more inflation in terms of oil, that would add 0.6% to the inflation rate so we wouldn’t have a 0.1% headline inflation rate, we’d have a 0.7% headline inflation rate. So you have to look closely inside the report to understand what’s going on.
Generally, the Fed tends to ignore food and energy prices because they’re so volatile. And this is a sign of that volatility.
