Inflation Rampant?

We had a couple of data releases this week telling us something about inflation. Today’s release was the CPI data for March, which comes on the heels of yesterday’s PPI data release.

Today’s news release showed surprisingly high inflation in non-energy consumer items. For some, this has raised alarm bells:

WASHINGTON (MarketWatch) — U.S. core consumer prices increased at the fastest pace in a year, the Labor Department said Wednesday.

…”After months of subdued core CPI inflation amidst an environment of charged energy prices, today’s report provides a signal, albeit noisy, that the long-awaited pass-through of higher costs to a wide range of consumer prices has arrived,” said Kenneth Beauchemin, U.S. economist at Global Insight.

Beauchemin said the rise in the CPI was consistent with expectations that the Federal Reserve would be hiking rates two more times before stopping. After the summary of the Federal Open Market Committee’s March meeting were released Tuesday, financial markets were hoping that Fed policymakers might only hike one more time. See full story.

“This was not a good report, especially if you are a member of the FOMC,” said Joel Naroff, president of Naroff Economic Advisors.

Is there really cause for concern about inflation? First of all, let me emphasize what I usually say about monthly reports: one month’s reading does not make a trend. These things are notoriously volatile. To really get a sense for what’s going on, one should look at several months’ data together. The following picture shows various inflation measures (both overall and ‘core’, meaning that it excludes food and energy) over 6-month periods.

For the first time in years, consumer prices for non-energy items have actually risen faster than consumer prices including energy goods over the past six months (as of March, at least). And the core CPI rate does seem to be tending in a somewhat upward-ish direction…

Cause for alarm? No, I don’t think so. But something to keep an eye on? Probably not a bad idea.