Higher US Inflation in March Is the Envy of Europe

The Bureau of Labor Statistics (BLS) has released its first look at consumer inflation for the month of March. The Consumer Price Index (CPI) came it a bit hotter than expected at a 0.4% gain, while the core CPI, excluding food and energy, came in at a tame 0.1%.

Dow Jones had the consensus estimates at 0.3% for the headline CPI and 0.2% for the core CPI.

The gain in headline CPI looked to be the biggest one-month gain in about 18 months, but about 60% of that jump was tied to the 3.5% jump in the energy price index. The gasoline index rose 6.5% in March, after increasing 1.5% in February. Other gains were seen in food prices and in housing/shelter.

Where things look more or less fine is in the annualized inflation numbers versus March of 2018. The year-over-year gain was 1.9% for March’s headline CPI (versus 1.5% for February’s year over year) and the core CPI gain was down to 2.0% (from 2.1% in February).

According to the BLS report:

The indexes for shelter, medical care, new vehicles, recreation, education, and tobacco were among those that increased in March, while the indexes for apparel, used cars and trucks, and airfares all declined.

Wednesday’s gains in CPI came after the European Central Bank kept its interest rates steady and warned that rates would be kept at present levels through at least the end of 2019. The bank’s president, Mario Draghi, also noted that inflation was likely to decline over the coming months but should (or hopefully) increase in the medium term. Draghi also warned that European risks are to the downside for overall GDP growth.

Inflation in the United States and in Europe is a tale of two cities, but as long as there is no serious violation above 2.0% on the lower end and 2.5% on the higher end then the U.S. Federal Reserve is not going to be that worried now that it has pledged to be out of the rate hiking business for the rest of 2019.