March 29, 2017

Inflation Continues for US Dollar in April

During April, the descending trend of the US dollar continued, with a 0.4% increase in the consumer price index, according to data [.pdf] released today from the Labor Department. The consumer price index measures adjustments in the prices of common goods and is a key indicator for inflation. April marked the tenth consecutive month with upticks in the consumer price index. Similar to recent months, such as January, February, and March, price increases in both food and energy fueled the rise.

The food index, which measures the prices of food both at home and away from home, increased 0.4% during April. This increase follows a 0.8% increase in March, or the greatest increase in nearly three years. Every major grocery store food group increased during April, excluding fruits & vegetables. The greatest increases among these major grocery store groups were dairy & related products, nonalcoholic beverages, and meat & poultry. In the past twelve months, the food index has risen 3.2%.

In addition to rising food prices, the energy index, which measures the prices of gasoline and utility services, also posted an increase in April, with a 2.2% rise. This is the tenth consecutive month with an increase in the energy index. Optimistically, this rise is less than February and March, when the energy index respectively rose 3.5% and 3.4%. Every major category within the energy index posted an increase during April. In the past twelve months, the energy index has risen 19%.

Gasoline alone has risen 33.1% in the past year, which accounts for nearly half of the rise within the energy index. During April, the gasoline index rose 3.3%, which follows an increase of 5.6% in March. At the beginning of April, the national price for a gallon of gas averaged $3.73, whereas the end of April averaged $3.93 per gallon.

The first two weeks of May sent the average price for a gallon of gas above $4, but the last two weeks of May will likely feature a national average below $4 per gallon. As discussed in more depth in this recent article, the descending price of oil will likely correlate with a descending price in gas. With foreseeable declines in energy costs, the consumer price index for May will likely feature a deceleration in the prices of energy.

Price increases in the energy index are particularly relevant, due to these increases not only impacting consumers, but also producers. In fact, the producer price index [.pdf], which measures the costs to produce goods, increased for the tenth consecutive month. Unsurprisingly, increases in the producer price index correlate to increases in the consumer price index. With rising costs to produce goods, consumers can continue to expect reductions in their purchasing power, albeit at a somewhat slight yet consistent pace.

Excluding food and energy, the consumer price index rose 0.2% in April. Similar to March, used vehicles, new vehicles, and medical care each posted increases. In the past twelve months, the prices for medical care have increased 2.9%, new vehicles have increased 2.4%, shelter has increased 1.0%, and airline fares have increased 12.1%.

With rising prices throughout the US economy, consumers are literally able to purchase less with the same amount of money. What’s more, consumers can expect the broad trend of a declining value in the US dollar to persist. In fact, the US dollar index, which measures the value of the dollar against six other prominent currencies, hit its lowest point at the end of April in nearly three years, as the chart below shows. While the falling price of oil will likely feature a deceleration in the consumer price index during May, inflation will continue in May, but at a more modest pace than April.

This index collectively measures the value of the US dollar against the value of the EUR, JPY, GBP, CAD, CHF, & SEK. Notice the low point at the end of April.

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