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What's pulling up the Consumer Price Index

The Consumer Price Index (both the overall rate, and the ‘core’ rate excluding food and energy) rose 0.2 percent in March 2014, according to the Bureau of Labor Statistics. CPI is up 1.5 percent for the past 12 months. Big drivers of price rises in March were food (up 0.4 percent m/m and 1.7 percent y/y) and shelter costs, especially rent (up 0.3 percent m/m, 2.9 percent y/y). Economists were predicting a smaller rise in inflation at the consumer level.

Food prices, both at home and in restaurants, are facing multiple inflationary pressures, including a spate of bad weather—severe drought in California, deep freezes in the South—as well as higher-priced food imports. Leading the surge were meat and eggs (up 1.2 percent in March), dairy (up 1 percent) and fruits and vegetables (up 0.9 percent).

Shelter costs have been rising steadily for renters and owners. The latter face higher home prices and mortgage rates; the former face a shortage of rental units, which drives up rents. Homebuilding (especially of multifamily apartment buildings and condos) has started to pick up after coming to a virtual halt through the Recession. But it will take many years for inventory to catch up with demand, says Ethan Handelman, VP for Policy and Advocacy at the National Housing Conference. 

“The pain [of rising rents] really goes pretty broadly," says Handelman. Handelman says low-income people usually can’t afford a rent hike—they’ve got no cushion and may be thrown into homelessness. He says middle-class people aren’t seeing their paychecks rise much. “Many of them are paying more than a third—and some are paying more than half—of their income for housing."

Among major product categories, only gasoline and airfare prices have fallen in the past twelve months (Gasoline is down 4.7 percent, and airfares have fallen 4.1 percent). 

The uptick in inflation so far is not alarming most economists. Inflation rates are still well below the Federal Reserve’s target of 2 percent. 

But economist Sarah Watt House at Wells Fargo Securities says average Americans might have a different experience of inflation going forward. 

“Even if you have a moderate rate of inflation,” says Watt House, “if you’re still not getting commensurate pickup in wage growth, and that starts to eat away at real income gains, I think it could be a little bit concerning to folks.”


By Shea Huffman/Marketplace

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.

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