March consumer prices will be released on Wednesday. Economists predict consumer prices will rise 0.3 percent, and core prices, less food and energy, will increase by 0.2 percent. In previous months, consumer prices have been muffled with no evidence of inflationary pressures. Here are five things to watch.
A Soft Core
In February, core consumers prices, less energy and food, continued the trend of showing very little movement. Core goods prices were weak while core services got a boost from wage gains and a tight labor market.
“I am not looking for any major shocks or changes in any component in March,” said David Sloan, Senior Economist at Continuum Economics. “I think the underlying inflation is still subdued.”
Black Gold
Oil Prices, per barrel, in U.S. Dollars
Last week, oil prices rose above $70 per barrel, their highest levels since October 2018. OPEC’s last four months of supply cuts, U.S. sanctions against Iran and Venezuela and the possibility of a conflict in Libya have contributed to the spike in oil costs.
As a result, Americans are paying more for gasoline. Last week alone, Americans spent a net of $1 million more on gasoline.
“There is more sticker shock in an economy like California that could certainly affect other states,” said Patrick Deehan, head of petroleum analysis for GasBuddy, a tech company that connects drivers with real-time gas prices at pumps across the country. “As prices go, other areas may see levels we have not seen in five years.”
Rising oil prices will affect airlines, shipping, logistics and even companies like Amazon that rely on delivery service. Most goods are transported over the road like food to grocery stores.
In an effort to influence oil prices, President Trump tweeted at the end of February, “Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike – fragile!”
Gasoline Prices per Gallon, in U.S. Dollars
Home Steep Home
Shelter is the largest component of consumer prices, and it has been rising continuously, faster than overall inflation. It has risen 3.4 percent over the last 12 months, higher than any other core component price.
“It’s a supply and demand issue,” said Joshua Leopold, housing expert at Urban Institute, an economic and social policy research think tank. “There is greater growth, way more increase in jobs and not enough housing units.”
While the rising housing costs are a sign that the labor market is improving, the accumulative rent increases of the last few years may create an affordability challenge for some. People are either paying more of their income on housing, or living farther away from work.
“More and more people have extreme commutes because they work in high cost areas where a lot of the jobs tend to be, and then they live an hour or even 2 hours away where they can afford the housing,” said Leopold.
Food
Food has been up 2 percent over the last 12 months. While it is a small percentage of consumer prices, it affects many other categories.
Part of the food component is restaurant food, which has been rising. Over the past 12 months, it has experienced inflation of almost 3 percent. More demand and an increase in labor costs may continue to drive up costs.
Food at home prices are also rising. The USDA predicts that overall food prices will increase about 2 percent this year. The greatest increases will be in dairy products with 4 percent, vegetables with 3.5 percent, fresh fruit at 3 percent and cereal and bakery items rising 3 percent as well.
High oil prices increase the cost of shipping food. Food in American grocery stores travel over great distances. Avocados from Mexico, oranges from Florida and almonds from California are some of the common foods found in a grocery store in New York.
The Feds
On the same day that the consumer price data is released, the minutes of the Federal Reserve’s last meeting will also be released. Economists are eager to get the details on the Federal Reserve’s approach.
There have been hints of revisions of key benchmarks that will be used for future decisions. The Federal Reserve may reveal a new tool to regulate the central bank’s monetary policy.
The Federal Reserve will also be addressing repurchase agreement rates. These rates, important in short-term funding markets, were increasing rapidly last month.
The Federal Reserve has been under bullying pressures from President Trump, questioning its authority and ability to regulate monetary policy. There are currently two vacancies on the Federal Reserve Board. The President has plans on filling these vacancies with candidates sympathetic to his way of doing things despite how questionable their qualifications may be.
There is an opportunity for the Federal Reserve to take back its authority in the message it releases from its March meeting.
