Consumer Prices Rose Less Than Forecast in April

April headline consumer prices rose +.4% MoM (consensus +.5%) and +2.6% YoY (down from +2.8% YoY in March). Excluding food and energy, the core CPI rose +.2% MoM, as expected, and softened to +2.3% YoY (consensus +2.4% YoY) from +2.5% MoM in March. This was the smallest annual increase in core inflation in a year.

Unfortunately, when you look at just the first four months of 2007 versus the same period in 2006, the annualized CPI has risen to 4.8% this year versus 2.5% last year, mainly due to higher food and energy costs. Total energy costs have risen at an annual rate of 25% in 2007, with petroleum products alone rising 40% annualized. Food prices have risen at an annual rate of 6.7% in the first four months of 2007. But, when food and energy costs are excluded, core inflation has actually fallen to 2.2% annualized in the first four months of 2007, versus +2.2% at the same point in 2006.

Energy prices rose a more modest +2.4% MoM in April, versus +5.9% MoM in March. Gasoline prices rose a stronger +4.7% MoM in April, to the highest level at the pump since hurricane Katrina in 2005. Food price gains accelerated in April to +.4% MoM. Energy represents almost 9% of the overall index, while food accounts for almost 14%.

Housing costs are showing signs of moderating, increasing only +.2% MoM for the second month in a row. Owner's equivalent rent, and true rents, both slowed to +.2% MoM, as vacancy rates rise. Hotel visits increased +1.9% MoM, after falling -2.3% in March. Housing costs represent 43% of the total CPI index, with owner's equivalent rent alone accounting for 24% of the total. CPI excluding shelter costs is now down to +1.2% YoY, from a peak of +2.1% YoY last August.

Medical costs re-accelerated to +.4% MoM, while clothing expenses continued to contract (-.3% MoM) but at a slower pace. New vehicle costs fell -.1% MoM. Education costs continue rising, gaining +.4% MoM. Personal computer costs remain the biggest deflators, falling -8.4% YoY.

The CPI is the government's broadest inflation measure, and includes both goods and services for end-users. Services comprise approximately 60% of the index and include everything from seeing the doctor to going to a movie. The index is based on a sampling of goods and services the government believes are bought by most households in their day-to-day activities. The survey covers 87 urban areas, 50k households, and 23k retail businesses, based on personal visits and phone calls. The price changes for individual items are weighted in the overall index by their importance in regard to total spending, which is periodically re-evaluated. Taxes are included.

Technical Note - The CPI data now goes to three decimal places rather than one, which will impact rounding.

Net - Core inflation appears to be easing, as housing cost gains slow, but steadily rising food and energy prices are keeping headline inflation elevated.