CPI Takeaways 4-15-21

Today’s CPI report beat estimates with March gains of 0.6% for the headline and 0.3% for the core. The March increases rounded down from respective gains of 0.620% and 0.339%. The headline CPI was lifted by a hefty 5.0% March surge in energy prices and a 0.1% uptick for food prices. Gasoline prices jumped another 9.1%, after gains of 6.4% in February and 7.4% in January. Firm core prices reflected moderately larger than expected gains across various components.

Today’s solid price increases join much larger PPI and trade price gains in both March and Q1 overall that leave an upward trajectory for price increases into 2021 that extends beyond the “base effects” that are also clearly lifting the y/y measures.

  • CPI rose 0.6% after a 0.4% February gain, leaving the y/y metric rising to 2.6% from 1.7%.
  • CPI core rose 0.3% after a 0.1% February gain, leaving the y/y metric rising to 1.6% from 1.3%.
  • The March headline and core price gains rounded from 0.620% and 0.339% respectively.
  • CPI energy prices rose 5.0% in March, while food prices rose 0.1%.

For big core price gains, tobacco prices rose 0.6%, as seen last month, after a 1.8% surge in January. We saw a 0.5% rise in used car prices, after -0.9% declines in each of the prior three months. We saw a 0.4% bounce for airline fares, after declines of -5.1% for February, -3.2% in January, and -2.5% in December.

For price restraint, we saw a -0.3% decline for apparel prices after a -0.7% drop, but prior big gains of 2.2% in January and 0.9% in December. New vehicle prices were flat, as seen last month. Medical care services prices rose by a lean 0.1%, after 0.5% gains in the prior two months. Owners’ equivalent rent rose by a moderate 0.2%, after gains of 0.3% in February and 0.1% in January.

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The y/y CPI headline gain popped to 2.6% from 1.7% in February, 1.4% in January and December, and 1.2% in both October and November. The core y/y gain rose to 1.6%, from 1.3% in February, 1.4% in January, and 1.6% over the three months through December.

On a moving average basis, CPI headline gains are trending higher after the sharp pull-back in Q2 of 2020, though core prices remain lean. We have 6-month average price gains of 0.295% for the headline and 0.127% for the core, versus respective 12-month average gains of 0.218% and 0.136%.

In April we expect CPI gains of 0.2% for both the headline and core, as energy prices flatten. The y/y CPI gain should surge to 3.5% however, from today’s 2.6%, while the y/y core price gain should climb to 2.2% from today’s 1.6%, both due to harder comparisons.

We expect y/y CPI gains to set peaks in May of around 3.8% for the headline and around 2.5% for the core. The steep climb in y/y inflation into mid-year will add to the market narrative that the Fed may be under-appreciating upside inflation risks, though y/y gains will moderate into Q3 and Q4 as comparisons become easier.

For the March PCE chain price indexes, we expect gains of 0.5% for the headline and 0.3% for the core. This would leave a y/y headline metric rising to 2.3% from 1.6% in February, while the y/y PCE core metric climbs to 1.8% from 1.4%. We expect y/y PCE chain price gains to mark peaks in April of 3.0% for the headline and 2.4% for the core.

We expect March consumption gains of 2.3% in nominal terms and 1.9% in real terms, which corresponds to estimated March retail sales gains of 4.8% for the headline and 4.5% ex-autos.

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We saw March PPI gains of 1.0% for the headline and 0.7% for the core, and a 1.3% PPI headline rise on the old SOP basis. Trade prices should post March gains of 0.9% for both imports and exports.

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