CPI, demystified
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There's a lot going on right now. Mounting economic inequality, threats to democracy, environmental disaster, the sour stench of chaos in the air. I'm Brooke Gladstone, host of WNYC's On the Media. Want to understand the reasons and the meanings of the narratives that led us here and maybe how to head them off at the pass? That's On the Media's specialty. Take a listen wherever you get your podcasts. nice inflation report you've got there too bad a lot of it's useless now i'm kidding mostly from american public media this is marketplace
From Minnesota Public Radio in St. Paul, I'm Kimberly Adams in for Kai Risdahl. It's Wednesday, March 11th. Good to have you along. I'm at APM headquarters today instead of my normal spot in D.C. But back in the nation's capital, this morning we got the latest read on inflation from the Federal Bureau of Labor Statistics. The Consumer Price Index registered just a 0.3% increase in the month of February. Over the past 12 months, prices rose 2.4%. That's the lowest reading in five years. But there are, as is so often the case, some caveats to what seems like encouraging news. Here to give us her expert opinion on the report is Nicole Servi, an economist for Wells Fargo Corporate and Investment Banking.
Welcome back to the show. Thanks for having me. Can I just get your quick reaction to the top line numbers? Yeah. So in terms of the month over months, those looked pretty good. But if you look at, for instance, the year over year rates of CPI and core CPI, they both moved sideways. And what the report suggests to me is that, yes, inflation is not as bad as we had feared by this point in time, but we're also not seeing progress either. And now we got to think about this energy price shock. And so while this report is encouraging, I do think it feels a little dated at this point in time, especially once we turn to the March CPI and get some of that immediate reaction to what we're seeing in the conflict in the Middle East.
Right. This is the giant asterisk on this report, which is that all of this data was before we went to war with Iran. Right. Correct. And so how are economists, do you think, factoring that in when reading this report? So if you look at the energy line, for instance, you can see that gasoline prices actually rose pretty solid in February, a little bit stronger than I think you would expect in a, let's say, a quote unquote typical February. And if you also think about the really bad winter storms on the Northeast, you wouldn't expect gasoline prices to rise as much as they did. But if you look at what was going on in oil, oil prices were actually rising in February in anticipation of potential escalation in the Middle East.
And you were seeing that risk premium being priced in. And that got directly translated to consumers already in February with a pretty decent gain in gasoline prices. And that gain is only just going to get stronger in March. What does this mean for the Fed? The CPI reading like this might be encouraging to folks on Wall Street that wanted another interest rate cut. But as you said, this oil price shock has now come down the pipeline. That's going to change everything. Right. And so one thing that I'll say is an important caveat here is we're looking at the Consumer Price Index. And the Fed, when they actually talk about inflation and what they target, they use a separate measure called the PCE deflator.
And right now they're measuring the same thing, the CPI and the PCE deflator. So they do tend to track together over time. But right now there is a pretty unique gap between the two in inflation. So I would just flag that as something to keep an eye on. Right now, if you look at what the CPI implies for the PCE deflator, it looks like the inflation as measured by the PCE is running a little bit stronger than what the CPI is actually suggesting at this time. And so the Fed is probably on alert. Right. This report is showing us and we don't even have the March data yet that disinflationary progress is stalling out.
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