Inflation: Today's PPI and Tomorrow's CPI

From Across the Curve:

Via Stephen Stanley at Amherst Pierpont Securities:

The March PPI figures were softer than expected, as both the total index and the core component declined by 0.1%.  The food component was much more negative than I had anticipated (down 0.9%), with the surprise mainly driven by large drops in fresh fruit and vegetable prices.  These categories often feed through to the CPI in the same month.  Energy costs rose by 1.8%, roughly in line with my expectations.  The core component was also marginally negative, pushed down by declines in financial services prices and wholesale trade services.  Nothing from the core PPI feeds through to the CPI, but a number of services line items are used to calculate the core PCE deflator.  These categories were mixed, but point to the core PCE deflator, if anything, running below the core CPI, as usual.

Speaking of the March CPI, it is due for release tomorrow.  I expect 0.2% increases for both the total and the core.  But they are very different  0.2%’s.  For the headline, my forecast worked out to a high 0.2%, almost rounding up to 0.3%.   However, at the margin, the weakness in the PPI for food led me to shave a hundredth or two off of the total, making me somewhat more comfortable at +0.2%.  For the core component, I also expect a 0.2% advance, but it’s a very low 0.2%.  In fact, my estimate on an unrounded basis is +0.16%, so I would not rule out a 0.1% rise tomorrow....MORE