Housing and Food Push Consumer Prices Up, Retail Sales Strong
- The March Consumer Price Index increased by 0.2 percent, as rents moved up.
- The March Core CPI also increased by 0.2 percent, and was up 1.7 percent over the past 12 months.
- Retail Sales for March were up a strong 1.1 percent as auto sales snapped back.
- Retail Sales Ex-Autos were also strong in March, up 0.7 percent, with gains in building materials.
Even as the Federal Open Market Committee became increasingly concerned with low inflation, as seen in the minutes of their March 18/19 meeting, consumer price inflation was picking up. The Consumer Price Index for March increased by 0.2 percent, up from the previous two months of 0.1 percent gains. A key factor in the small uptick in consumer inflation was the cost of housing. House prices were up 11.4 percent in the fourth quarter of 2013 over the previous year, according to the Case-Shiller National U.S. House Price Index. Many large cities are well above the national average for house price appreciation. The Case-Shiller and other house price indexes do not factor directly into the CPI, but they are related. The Bureau of Labor Statistics calculates an index called owners’ equivalent rent. That index shows how much the average homeowner would have to pay to rent a house that is equivalent to the one they own. Obviously, house prices are a key factor in that index. As house prices go up, so too will the owners’ equivalent rent index which feeds into the shelter component of the CPI. Owners’ equivalent rent accounts for about 24 percent of headline CPI. Ongoing house price gains will keep upward pressure on the CPI. Also, rental vacancy rates are falling. We can expect ongoing upward pressure from traditional rents, which account for about 7 percent of headline CPI. So we can say that about a third of CPI will feel more pressure from housing markets for the remainder of the year. Energy prices were down slightly in March. Food prices were up 0.4 percent for the second straight month. The drought in California is showing up at the neighborhood grocery store. For those of us who do not eat, inflation was a non-issue in March. For everyone else, we see year-over-year growth in the CPI bottoming out and beginning to tick up this year.
Retail sales for March were up a strong 1.1 percent, driven by a snap back in unit auto sales to a 16.4 million unit annual rate. Retail sales of autos and parts were up 3.1 percent in March. Non-auto retail sales gained a solid 0.7 percent for the month. General merchandise store sales were up 1.9 percent in March and building material sales were up 1.8 percent. So in autos and building materials we see a weather-related bounce back. The strong retail sales growth seen in March will not be sustained in the months ahead, but it is nonetheless a sign that consumer spending is resilient.
Market Reaction: Equity markets are turning south after opening gains. Treasury yields are down. NYMEX crude oil is down to $103.91/barrel. Natural gas futures are up to $4.67/mmbtu.
For a PDF version of this Comerica Economic Alert click here: CPI 04-15-14.