Treasury Yields Move on Inflation and Retail Sales Data Last Week (Part 3 of 6)
(Continued from Part 2)
A rise in consumer price
The Consumer Price Index (or CPI) measures the pace of price rise. It rose by 0.2% month-over-month in March 2015, the same pace it rose in February. The rise was mainly driven by rising gasoline prices, which rose for the second successive month.
The energy index rose 1.1% for the month, while the gasoline index was up 3.9%. The rise in the energy index compensated for the 0.2% decline in the food index.
A rise in crude oil prices was favorable for ETFs such as the Market Vectors Oil Services ETF (OIH) and the United States Oil Fund LP (USO). The ETFs rose 10.8% and 17.8%, respectively, until April 17 from end-of-March levels. In the same period, oil-related stocks such as Schlumberger (SLB), BP plc (BP), and ConocoPhillips (COP) have risen 11.3%, 9.7%, and 8.7%, respectively.
In the 12 months to March 2015, prices fell 0.1% on an unadjusted basis, with the gasoline index down 18.3% in the period.
Energy index rises, but food index falls
The energy index rose 1.1% month-over-month. Meanwhile, the gasoline index (all types) also rose, posting a growth of 3.9% month-over-month in February. However, it is still down a staggering 29.2% from a year ago on an unadjusted basis.
Another volatile input in the CPI is food prices, which fell 0.2% month-over-month in March after rising by the same pace a month ago. However, on a 12-month unadjusted basis, food prices are up 2.3%. The eating out index rose by 0.2% month-over-month after a 0.3% rise in the previous month.
Surprisingly, the food at home index dropped 0.5% in March, the biggest fall since April 2009. Of the six major grocery store food group indices, five fell in the month, led by a decrease in the food and vegetables index. The food at home index is up just 1.9% from a year ago.
Core inflation rises
Core inflation, which measures prices of all goods except fuel and energy, rose by 0.2% month-over-month in March, the same pace for the two preceding months. Year-over-year, core prices were up 1.8%, up from a 1.7% pace in February. Fuel and energy costs are excluded from this calculation since they are volatile in nature and susceptible to price shocks. This can distort the inflation picture. Thus, apart from overall inflation, a core-inflation index is also calculated.
The rise in overall inflation and core inflation is welcome, but nothing conclusive can be drawn from the report regarding whether it’s helpful in providing monetary policymakers enough confidence about the inherent inflationary pressures. This is primarily because the CPI generally reads higher than the PCE (personal consumption expenditures) price index, the preferred measure of inflation of policymakers. Hence, a target level of 2% for the PCE price index is actually higher when gauged through the CPI.
From the next article on, we’ll analyze the primary market activity in the U.S. Treasury bill auctions last week.
Continue to Part 4
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