Updated: 15-May-09 09:04 ET

April CPI

Updated: 15-May-09 09:04 ET

Highlights

• The core CPI was up 0.3%, which was above expectations and the 0.2% gains the prior three months. It is a bit surprising given overall economic weakness.
• It was partly caused by another month of a huge increase in tobacco costs, which were up 9.3%. The core rate would have been up 0.2% (and just barely that, at almost 0.1%) without this extraordinary factor.
• Most major categories were up marginally at most.  Apparel costs were -0.2%, recreations costs were -0.4%, education was up 0.3%, while medical costs did bump 0.4% for the largest increase in a while.  New car prices were up 0.4%. The owners' equivalent rent was up just 0.1%.
• Year-over-year CPI is -0.7%, the biggest decline since 1955, while the core is at just 1.9%.

Key Factors

• The April CPI is mixed data that shouldn't alter market expectations or cause concern at the Fed.
• The overall trends in the data do not suggest significant underlying inflation pressures, and also do not substantiate concerns about deflation.  The overall rate at 0.0% was caused by a 2.4% drop in energy prices as food prices fell 0.2% for their third straight modest monthly decline.

Big Picture

• Inflation trends have weakened and might weaken further as 2009 progresses.  The decline in energy prices after the summer spike has taken CPI down to -0.7% on a year-over-year basis as of April 2009 data.  Energy prices may not continue lower, but the core rate should ease from its 1.9% year-over-year rate due to weak demand.  Low inflation rates are likely to continue through 2009 although deflation is not likely.