The recently released March readings for the Consumer Price Index (CPI) and Producer Price Index (PPI) both moved higher. Headline CPI, which measures the prices that consumers pay for a variety of goods and services, hit 2.4%, while the core reading, which removes the impact of food and energy prices, came in at 2.1%. On the other hand, the PPI, which measures the wholesale selling prices received by producers*, accelerated at 3.0% and 2.7% for headline and core readings, respectively. In fact, the core reading was the highest since February 2017 for CPI and October 2011 for PPI.
But what does two major measures of inflation rising above the Federal Reserve’s (Fed) 2% target mean for the future path of rate hikes? As our chart of the day suggests, it doesn’t mean a lot in the near term. Chief Investment Strategist John Lynch explains, “Both CPI and PPI ticked higher in March, but the moves were moderate and do not reflect a major increase in inflation pressure. We would likely need to see a significant move higher for PCE inflation (currently at 1.6% year over year), or wage inflation nearing 4% before we would expect a more aggressive Fed.”
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services.
Personal consumption expenditures (PCE) is a measure of price changes in consumer goods and services. Personal consumption expenditures consist of the actual and imputed expenditures of households; the measure includes data pertaining to durables, nondurables, and services. It is essentially a measure of goods and services targeted toward individuals and consumed by individuals.
* Sellers’ and purchasers’ prices may differ due to government subsidies, sales and excise taxes, and distribution costs.
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