Deconstructing the April Consumer Price Index

The Bank of England sees inflation as a growing problem, but once again the magicians at the Bureau of Labor Statistics waved their magic wands over the April Consumer Price Index.

April CPI was 0.2%, up 3.9% y/y (year over year) and excluding everything, core increased 0.1% (2.3% y/y), slightly lower than Wall Street’s expectation.

Let’s start with what the BLS is reporting as a decrease for April, since it is a lot shorter than the list of price increases. Try to keep a straight face as you read the numbers.

April Decreases:

  • The transportation index dropped 0.7% due to a 2% decrease in the index for gasoline. (“Real world”, not BLS calculated retail gas prices increased 11% and retail diesel by 7.5%.)
  • The public transportation index dropped 0.4%, primarily due to a 0.5% decrease in the index for airfares. Before the BLS calculated the numbers on a seasonally adjusted annual rate (SAAR), airfares rose 0.9%, or 10.1% y/y. (I guess the airlines exempt the government from all their price increases.)
  • The cost for new motor vehicles dropped 0.2%. (Is this stat based on consumers purchasing more fuel efficient compact cars vs. SUVs? Otherwise, the number needs to be higher as automakers are adding features to compacts to boost sticker prices by $2-3,000.) Used vehicle prices fell 0.3%. (The result of an offset in the drop in residual value of SUVs?)
  • Household furnishings declined 0.1%.
  • IT Hardware/Services dropped 0.7% on lower costs for computers, peripherals, and the internet. (I’d really like to know the government’s ISP as my internet costs have never declined.)
  • For the third consecutive month, lodging dropped 1.9%.
  • The recreation index decreased 0.1%, largely due to a drop in the audio/video index (0.4%). Other items contributing to the decline were toys, photography, movie tickets, and concert/theater tickets. (If the recreation and lodging numbers are accurate, this will not bode well for consumer discretionary stocks.)

April Increases:

  • Food. SAAR calculated, the food index increased 6.9% so far this year. Food at Home increased 1.5% “reflecting substantial increases in all six major grocery store food groups.” Nonalcoholic beverages increased 1.7% on large coffee and carbonated drink increases. Produce increased 2% from March, as fresh fruit increased 3.2% and processed fruits/veggies by 3.4% (but fresh veggies dropped 0.2%). Bread prices are up 14.1% y/y, with cereal & bakery prices up 1.4% from March. April prices for meats, poultry, fish, eggs increased 0.9%; dairy products increased 1.2% (butter was up 7.8%).
  • Shelter. The Housing index increased 0.3% and shelter by 0.1%. Rent increased 0.3%. OER (Owner’s Equivalent Rent – what the government calculates you could rent out your home for) increased 0.2%. Electricity, fuel oil, and natural gas cost increases boosted Household energy costs 2.6%.
  • Medical. Medical Care Services increased 0.3%, and Medical Costs by 0.2%, up 4.3% y/y. However, the BLS claims the cost for prescription drugs, over the counter medications, and medical supplies decreased 0.2%.
  • Communications/Phone Services. Education costs increased 0.6%; Communications 0.4%.Wireless costs increased 0.3%. Local landline 0.8%; long distance landline 0.3%.
  • Apparel. SAAR-adjusted, apparel increased 0.5% (ex-SAAR up 1%).
  • The Personal Care products index increased 0.6%, primarily due to an increase in hair, dental, shaving and “miscellaneous” products. Smoking/tobacco products increased 0.3%.

From a trading perspective, the most important thing is the market’s reaction rather than the lack of reality in the numbers. In spite of the magic, the April CPI shows consumers are paying more for goods and services needed for daily living. Goods and services that are not necessary are being cut back. For the stockmarket, this could be party now, pay later.

Related Post: “March CPI: Desperate Housewives Want to Know Where the Government Shops”

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