The Bureau of Labor Statistics releases measures of March consumer prices on Wednesday. Economists expect the headline Consumer Price Index to increase by 1.8 percent, and the core CPI, which excludes energy and food, by 2.1 percent. Increasing oil prices are pushing up the headline price index, which increased by 1.5 percent in February, but the core CPI should remain stable.
Wages Outpacing Inflation
Wages have been growing more rapidly that inflation since 2014, and the gap between the two has been widening since the summer of 2018.
“Increases in labor market participation have provided employers with a significant source of additional labor input and may be one factor restraining inflationary pressures,” said Richard H. Clarida, vice chair of the Federal Reserve Board (FED), today.
Watch for a continued combination of low inflation and strong job gains, especially among historically disadvantaged groups, such as African Americans and Hispanics.
Trump, the FED and Interest Rates
President Donald Trump has named two unconventional candidates to fill two Federal Reserve Board openings. They have been deemed unqualified for the job by legislators and established economists, but they are recognized as overt loyalists to President Trump, which raises concerns over loss of independence by the FED.
Underlying the President’s choice of nominees is his disagreement with the FED’s decision to raise interest rates in December. If these candidates were to take seats in the FED, their votes wouldn’t be enough to get the FED’s Open Markets Committee to change course.
Rising Cost of Shelter, More Manageable
“We are looking for price pressure in rent,” said Samuel Coffin, US economist at UBS Investment Bank. The cost of shelter (rent of primary home and owner’s equivalent rent) has risen at higher rates than general inflation since October 2012. Behind this are low vacancy rates caused by housing shortages, wage growth, and Millennial demographic pressure.
Though it remains firmly above general inflation, cost of shelter’s rise has been easing since 2017. Decreasing mortgage rates and the FED’s decision to halt interest rate increases may be contributing to this slowdown in shelter inflation.
Wage rates growth has accelerated over the last year. Watch Wednesday to see whether growth in wage rates have caught up with shelter inflation rates, as it may make the rising cost of shelter more manageable to consumers.
Look out for new decreases in the prices of commodities.
Since October, commodity prices have risen, even if diminutively, at a rate below 0.3 percent a year. But a slowdown of the global economy, and a continued rise in the value of the dollar relative to other currencies over the last year, could lead to new decreases in the prices of commodities.
Between March 2013 and October 2018, prices of commodities had been decreasing.
Watch for a continued increase in gasoline prices in March.
“The story in this month’s report is an energy story,” said Gregory Daco, head of US macroeconomics at Oxford Economics Limited.
After plunging between October and December, oil prices have been on the rise since the beginning of the year, fueled by turmoil and distress in Venezuela, Iran and Libya, and by Saudi Arabian efforts to raise prices through decreased production. Gasoline prices followed suit, with a lag, in February.
“We will probably also see the effects of that in areas related to energy, like airfare,” said Coffin.