Good News on Inflation

Dan North | April 2023

The Consumer Price Index (CPI) rose only 0.1% m/m in March, below expectations of 0.2%. Perhaps more importantly, the y/y rate fell a full 1% from 6.0% in February to 5.0% in March, the lowest since May of 2021. After stripping out volatile food and energy prices, the core rate rose 0.4% m/m putting the y/y rate at 5.6%. However, that’s just above last month’s 5.5% which was the lowest since the peak last September of 6.5%. 

On a mm/m basis, gasoline fell the most, dropping -4.6%, while air fares rose a steep 4.0%. The y/y patterns were the same as gasoline fell -17% while airfares gained 18%.

The Producer Price Index (PPI), which measures the prices that producers receive for their goods and services, delivered very happy news. On a m/m basis, PPI plummeted a dramatic -0.5%, blowing past expectations of 0.0%. It was the biggest decline since just after the pandemic started in April of 2020. The results on a y/y basis were even more startling, nosediving from 4.9% in February to 2.7% in March. That’s a breathtaking descent in one month. Furthermore, over the course of the past year, the PPI has fallen a gigantic 9% from 11.7% last March. Progress is being made.

The core rate (Final Demand Less Foods, Energy, and Trade Services) also delivered inspiration, as the y/y rate fell from 4.8% to 3.7%  Looking at the individual industries on a m/m basis, prices in the energy industry fell -6.4%, driven by a huge -11.7% drop in gasoline prices. Energy also had the largest decline on a y/y basis at -7.2% while construction gained an outsized 15.6% over the year.

The sharp decline in the PPI y/y is significant because. As shown in the chart below the PPI tends to lead the CPI, suggesting that CPI is likely to continue falling as well.

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