When the government releases its latest consumer price inflation reading at 8:30 a.m. on Tuesday, Wall Street investors will be eagerly watching the data point, which is expected to jump starting this month.
Inflation data matters because it gives an up-to-date snapshot of how much it costs Americans to buy the goods and services they regularly consume. And because the Federal Reserve is charged in part with keeping increases in prices contained, the data can influence its decisions — and those affect financial markets.
But there’s a big reason not to read too much into the expected bounce in March and April — and it lies in so-called base effects.
Inflation Is Set to Jump
#g-base-effects-box ,
#g-base-effects-box .g-artboard {
margin:0 auto;
}
#g-base-effects-box p {
margin:0;
}
#g-base-effects-box .g-aiAbs {
position:absolute;
}
#g-base-effects-box .g-aiImg {
position:absolute;
top:0;
display:block;
width:100% !important;
}
#g-base-effects-box .g-aiSymbol {
position: absolute;
box-sizing: border-box;
}
#g-base-effects-box .g-aiPointText p { white-space: nowrap; }
#g-base-effects-335 {
position:relative;
overflow:hidden;
}
#g-base-effects-335 p {
font-family:nyt-franklin,arial,helvetica,sans-serif;
font-weight:300;
line-height:18px;
height:auto;
filter:alpha(opacity=100);
-ms-filter:progid:DXImageTransform.Microsoft.Alpha(Opacity=100);
opacity:1;
letter-spacing:0em;
font-size:15px;
text-align:left;
color:rgb(0,0,0);
top:1.2px;
position:static;
text-transform:none;
padding-bottom:0;
padding-top:0;
mix-blend-mode:normal;
font-style:normal;
}
#g-base-effects-335 .g-pstyle0 {
height:18px;
position:relative;
}
#g-base-effects-335 .g-pstyle1 {
line-height:16px;
height:16px;
font-size:13px;
color:rgb(153,153,153);
top:1px;
position:relative;
}
#g-base-effects-335 .g-pstyle2 {
line-height:16px;
height:16px;
font-size:13px;
text-align:right;
top:1px;
position:relative;
}
#g-base-effects-335 .g-pstyle3 {
font-weight:700;
line-height:16px;
height:16px;
font-size:13px;
text-align:right;
top:1px;
position:relative;
}
#g-base-effects-335 .g-pstyle4 {
font-weight:700;
line-height:14px;
height:14px;
font-size:12px;
text-transform:uppercase;
top:1px;
position:relative;
}
#g-base-effects-335 .g-pstyle5 {
line-height:13px;
height:13px;
font-size:11px;
text-transform:uppercase;
color:rgb(153,153,153);
top:0.9px;
position:relative;
}
#g-base-effects-335 .g-pstyle6 {
line-height:16px;
height:16px;
font-size:13px;
top:1px;
position:relative;
}
#g-base-effects-600 {
position:relative;
overflow:hidden;
}
#g-base-effects-600 p {
font-family:nyt-franklin,arial,helvetica,sans-serif;
font-weight:300;
line-height:19px;
height:auto;
filter:alpha(opacity=100);
-ms-filter:progid:DXImageTransform.Microsoft.Alpha(Opacity=100);
opacity:1;
letter-spacing:0em;
font-size:16px;
text-align:left;
color:rgb(0,0,0);
top:1.3px;
position:static;
text-transform:none;
padding-bottom:0;
padding-top:0;
mix-blend-mode:normal;
font-style:normal;
}
#g-base-effects-600 .g-pstyle0 {
height:19px;
position:relative;
}
#g-base-effects-600 .g-pstyle1 {
line-height:16px;
height:16px;
font-size:13px;
top:1px;
position:relative;
}
#g-base-effects-600 .g-pstyle2 {
font-weight:700;
line-height:16px;
height:16px;
font-size:13px;
top:1px;
position:relative;
}
#g-base-effects-600 .g-pstyle3 {
line-height:13px;
height:13px;
font-size:11px;
text-transform:uppercase;
color:rgb(153,153,153);
top:0.9px;
position:relative;
}
#g-base-effects-600 .g-pstyle4 {
line-height:16px;
height:16px;
font-size:13px;
color:rgb(153,153,153);
top:1px;
position:relative;
}
#g-base-effects-600 .g-pstyle5 {
font-weight:700;
line-height:14px;
height:14px;
font-size:12px;
text-transform:uppercase;
top:1px;
position:relative;
}
In March’s data, inflation is expected to rise
substantially above 2 percent.
+2.5%
March 2021
forecast:
+2.5%
+2.0
+1.5
PERCENT CHANGE
IN CONSUMER
PRICE INDEX
FROM A YEAR AGO
+1.0
+0.5
RECESSION
2019
2020
2021
However, some of the jump can be explained
through what’s known as base effects — prices fell
significantly last spring, so the increase now from the
year prior is larger, even if prices are not rising as
dramatically.
265
2021 Consumer price index
2020
255
Jan
April
July
Oct.
In March’s data, inflation is expected to rise substantially above 2 percent.
March 2021
forecast:
+2.5%
RECESSION
+2.5%
PERCENT CHANGE IN CONSUMER
PRICE INDEX FROM A YEAR AGO
+2.0
+1.5
+1.0
+0.5
2019
2020
2021
However, some of the jump can be explained through what’s known as base effects —
prices fell significantly last spring, so the increase now from the year prior is larger, even
if prices are not rising as dramatically.
265
2021 Consumer price index
260
2020
255
Jan
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
Consumer inflation is usually measured on a year-over-year basis. Statisticians take a bundle of goods and services Americans buy — everything from fresh fruit to apartment rent — and aggregate it into a price index. The inflation rate that is reported each month shows how much that index changed from one year to the next.
For a quarter century, most measures of inflation have held at low levels. The Consumer Price Index moves around a bit because of volatile food and fuel prices, but a “core” index that strips out those factors has mostly come in shy of 2 percent.
But the data reported for March and April may show something different because price indexes dropped sharply a year ago as the country went into lockdown and airlines slashed ticket costs, clothing stores discounted sweaters, and hotels saw occupancy plunge.
That means inflation measures are about to lap super-low readings, and as that low base falls out, it will cause the year-over-year percent changes to jump — a little bit in March, and then a lot in April.
To be sure, climbing prices could last for a while as businesses reopen, consumers spend down big pandemic savings and producers scramble to keep up with demand. Economists and Federal Reserve officials do not expect those increases to persist for more than a few months, but if they did, it would matter to consumers and investors alike.
But a bump in prices isn’t the kind of demand-driven inflation that would prompt the Fed to lift interest rates or slow bond buying in a bid to control prices. March’s figures are most likely just a mathematical quirk.
Source: Economy - nytimes.com
