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Inflation Observatory

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Core inflation remains low but positive

Thu, Apr 16 2009, 08:53 GMT
by BBVA Bancomer Team

BBVA Bancomer

• Falling energy prices led the decline of headline consumer prices
• Core components experienced mixed results
• Downside risks remain due to economic slack
• Headline inflation fell for the first time in 2009

March’s change in headline consumer prices came in below our expectations at -0.1%. After rising for the first two months of 2009, March’s headline inflation was dragged down by a 3.0% drop in energy prices. The 4.0% drop in gasoline prices led the decline, bringing headline CPI down by 0.2pp. In addition, a 1.78% fall in home fuel prices subtracted another 0.1% from the overall index. Food prices dropped for the second consecutive month by 0.1%, but they had a negligible effect on the overall index. The 0.1% increase in food away from home was more than compensated by the 0.3% decrease in food at home. Looking forward, April’s headline inflation could see a neutral influence of energy prices because both gasoline and natural gas have remained fairly stable.

Core consumer prices, on the other hand, exceeded our expectations by coming in at 0.2%, compared to our 0.1% forecast. Core commodities increased 0.4%, largely influenced by an 11% increase in prices of tobacco and smoking products along with a modest 0.3% increase in household furnishings. However, apparel prices decreased after rising for the previous two months, which could reflect discounts offered at retailers in response to the decline in demand. In addition, after increasing last month, prices of new and used automobiles remained unchanged. Core services increased 0.1% due to modest increases in education and communication and medical care. Shelter prices did not change for the second month in a row, because the increase in rent and owners equivalent rent was again offset by the continued decline in lodging away from home.

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Published on  Thu, Apr 16 2009, 08:55 GMT