CPI, demystified

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A nice inflation report you've got there.

Too bad a lot of it's useless now.

I'm kidding, mostly.

From American Public Media, this is Marketplace.

From Minnesota Public Radio in St. Paul, I'm Kimberly Adams and for Kyra's Doll.

It's Wednesday, March 11th, good to have you along.

I'm at APM headquarters today instead of my normal spot in D.C.

But back in the nation's capital, this morning we got the latest read on inflation from the

federal Bureau of Labor Statistics.

The Consumer Price Index registered just a 0.3% increase in the month of February.

Over the past 12 months, prices rose 2.4%.

That's the lowest reading in five years.

But there are, as is so often the case, some caveats to what seems like encouraging

news.

Here to give us her expert opinion on the report is Nicole's survey, an economist for

Wells Fargo Corporate and Investment Banking.

Welcome back to the show.

Thanks for having me.

Can I just get your quick reaction to the top line numbers?

Yes.

So, in terms of the month of our months, those looked pretty good.

But if you look at, for instance, the year of your rates of CPI and Core CPI, they both

moved sideways.

And what the report suggests to me is that, yes, inflation is not as bad as we had feared

by this point in time.

But we're also not seeing progress either.

And now we got to think about this energy price shock.

And so, while this report is encouraging, I do think it feels a little dated at this

point in time, especially once we turn to the March CPI and get some of that immediate

reaction to what we're seeing in the conflict in the Middle East.

Right.

This is the giant asterisk on this report, which is that all of this data was before

we went to war with the Iran.

Correct.

And so, how are economists, do you think, factoring that in when reading this report?

So, if you look at the energy line, for instance, you can see that gasoline prices actually

rose pretty solid in February.

It's a little bit stronger than I think you would expect in a, let's say, a quote-unquote

typical February.

And if you also think about the really bad winter storms on the Northeast, you wouldn't expect

gasoline prices to rise as much as they did.

But if you look at what was going on in oil, oil prices were actually rising in February

in anticipation of potential escalation in the Middle East, and you were seeing that

risk premium being priced in.

And that got directly translated to consumers already in February with a pretty decent

gain in gasoline prices, and that gain is only just going to get stronger in March.

What does this mean for the Fed?

You know, the CPI reading like this might, you know, be encouraging to folks on Wall

Street that wanted another interest rate cut.

But as you said, this price, this, you know, oil price shock has now come down the pipeline,

that's going to change everything.

Right.

And so, one thing that I'll say is an important caveat here is we're looking at the

consumer price index.

And the Fed, when they actually talk about inflation and what they target, they use a separate

measure called the PC deflator.

And right now, they're measuring the same thing, the CPI and the PC deflator.

So they do tend to track together over time.

But right now, there is a pretty unique gap between the two indices.

So I would just flag that as something to keep an eye on.

Right now, if you look at what the CPI implies for the PC deflator, it looks like that

inflation is measured by the PCE is running a little bit stronger than what the CPI is actually

suggesting at this time.

And so the Fed is probably on alert, right?

This report is showing us, and we don't even have the March data yet, that disinflationary

progress is stalling out.

And now we're anticipating an energy price shock.

And that's just going to make any of the disinflationary pressures that we were hoping

for all that much harder.

Now when you think about how the Fed responds to supply side shocks in general, just over

the course of time, they try to look through commodity price shocks in particular, because

they tend to be idiosyncratic as we know.

And we saw the Fed actually have that impulse back when we're reopening from the pandemic.

They're trying to look through some of that energy price shock initially, but then we

ended up reacting to inflation ultimately.

I think they're going to be a little bit more sensitive, because of what we saw in the

wake of Russia's invasion of Ukraine, inflation was really strong at that time.

I think they're going to be more sensitive to an energy price shock today, having learned

from that experience.

I think all of these data point towards staying more restrictive, i.e. maybe holding rates

at their current level for longer than they anticipated before the shock, because of

some of that uncertainty related to energy.

I mean, how useful is this report really?

Not all that useful, so one thing that I like to say is that inflation is a lagging indicator,

and this report feels more lagged than most.

Nicole's survey is an economist for Wells Fargo Corporate and Investment Banking, thank

you so much.

Thanks.

Wall Street today, oil prices went back up again, sending markets down.

We'll have the details when we do the numbers.

Now, there is some useful info in February's CPI report, even if a lot of it is a bit outdated

due to the war.

For example, even though prices overall rose 2.4% year over year, as analysts expected,

natural gas prices rose at a much faster pace.

They're up 10.9% compared to the same time last year, and that's before the Iran War

threatened to choke off a fifth of the global gas supply.

Marketplaces know the SAFO takes a look.

Lots of American households saw higher heating bills this winter, especially in the Northeast

and Midwest.

A big factor is that it was colder than last winter.

It's about half the increase that we're estimating, this is the fact that families just

need to use more natural gas.

That's Mark Wolff, he heads the National Energy Assistance Directors Association.

The cold weather and the higher demand came on top of another trend that's also elevated

prices for natural gas.

The rapid growth of data centers means that we need more electricity, and about 40% of

the feeder fuel to produce electricity is some natural gas.

The Consumer Advocacy Group Powerline says three and five Americans are feeling financially

stressed because of rising utility bills.

Over the last few months, the cost pressures added up, Wolff says eight groups he works

with, have been reporting a lot more need.

People that didn't really pay attention to the utility bills in the past are now paying

attention.

We're hearing from moderate income and even some middle class families are asking if there's

any help to pay their bills.

We never saw that before.

It's usually just the very poor.

Could the Iran conflict make the situation worse?

Well in Asia and Europe, natural gas prices have been soaring because liquefied natural

gas exports from the Middle East have been interrupted.

But for the US, there's some good news, as Ken Medlock, Energy Economist at Rice University.

North America, not just the United States, has been largely shielded on the natural gas

front from what's going on in the rest of the world.

That's because the US actually produces plenty of natural gas.

It even exports a growing portion of what it makes.

And Tom Sang, Assistant Professor of Energy Finance at Texas Christian University, says

natural gas prices in the US should actually come down soon.

We're almost mid-March heading into April.

April is a very much a low demand period for natural gas domestically.

That's kind of helping the situation.

Meaning Americans are likely to see some relief from the higher bills they've been paying.

A natural gas prices here in the US should remain relatively affordable compared to what's

happening in the rest of the world.

I'm Noah Safo for Marketplace.

Look, this story is changing quickly.

But we've got you covered.

Be sure to listen to David Broncoccio and our Marketplace Morning Report team to get the

latest on how this war is affecting the global economy and your personal economy, too.

Give it a listen every weekday morning.

Energy prices aside, inflation over the past year has been a lot more muted than economists expected.

That's despite the fact that the president's tariffs are still making imported goods more expensive.

Now, a handful of factors are holding inflation back.

Trade agreements, exemptions for various industries and a lot of companies are just absorbing

the costs of tariffs rather than passing it along to customers.

There's also an argument to be made that import taxes might not be inflationary at all

and that tariffs could actually reduce inflation.

I know that all sounds contradictory, but Marketplace's Justin Ho will make it make sense.

Tariffs by definition are taxes on imported goods.

They make those products more expensive.

Thing is, tariff policy over the last year has been erratic and the uncertainty that's generated

has its own side effects.

We compare it to a broken traffic light at a four-way stop.

Megan Schoenberger is senior economist with KPMG.

When there's a broken traffic light, cars slow down.

They stop.

They make U-turns and never make it to their destination at all.

That's exactly how uncertainty acts for households and firms.

Households and firms might buy fewer big ticket items and make fewer investments.

Companies might hold off on hiring.

In other words, the economy could slow down.

There's a possibility that they could slow economic growth to such an extent that they're

disinflationary or even deflationary.

Researchers from the San Francisco Federal Reserve recently found that over the last

150 years, tariffs and all the uncertainty they create have led to lower economic activity

and as a result, lower inflation.

I will say that I actually don't find it that surprising.

That's Robert Johnson, a professor at the University of Notre Dame.

He's also studied how tariffs can reduce inflation.

He says it's not just the uncertainty.

The president's trade policies are sending a message that there is a deep

undercurrent of anti-trade sentiment in the US and that the US is going to pull back

from international trade.

Johnson says being open to international trade allows countries to specialize on what they're

good at, textiles or electronics or sophisticated technology.

And when a country focuses on what it's good at, Johnson says it makes more money.

So if we close ourselves off to international trade, we lose the gains from that ability to focus

our economic activities on the places and the things that we're best at.

Johnson says that can cause companies to start worrying about their own revenue in the future.

So they're going to spend less today.

And as a result of that, a lower amount of spending typically translates into lower inflation

in the macroeconomy.

Another factor that's been holding back inflation is that many businesses are trying to avoid raising

prices. So they're spending less on research, marketing and employees.

And one of the big things we've seen over the last year is a very sharp drop in hiring.

Ed Gresser is director for trade and global markets with the Progressive Policy Institute.

It may be that one of the ways they've found to manage this is to take money in labor and

that wouldn't have inflationary effect.

But if the labor market keeps weakening, the economy could get stuck in a vicious circle.

Megan Schoenberger at KPMG says people who are concerned about their jobs look at a product that's

getting hit with a tariff and decide it's just not worth it.

I think that would be a big test because if people just start to refuse to purchase these items,

that of itself can be disinflationary.

And if that's the case, sure, tariffs have brought down inflation.

But the economy would have much bigger problems.

I'm Justin Hao from Marketplace.

Coming up, you know, a size 8 in one store will not be a size 8 in another store.

The struggle is real. But first, the numbers.

The Dow Jones industrial average declined 289.6 tens of a percent to close at 47,417.

The Nasdaq picked up 19.1 tens per cent to finish at 22,716.

And the S&P 500 lost 5.1 tens per cent to end at 67.75.

Nova was just talking about the rise in natural gas prices in the U.S.,

which happened even before the war with Iran.

Major U.S. producers of natural gas did well on the market today.

Exxon mobile corporation rose to an a third per cent.

Chevron increased 3 per cent.

Conoco Phillips added 2.5 per cent.

The international energy agency said its members would release a record 400 million barrels of oil from its stockpile.

Brent crude settled at about $92 a barrel.

And we mentioned yesterday that cloud infrastructure form Oracle delivered a robust earnings report.

Today, Oracle Corporation leaped 9.2 tens per cent.

bonds fell, the yield on the 10-year T-note rose to 4.22 per cent.

And you're listening to Marketplace.

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This is Marketplace. I'm Kimberly Adams.

Today's CPI report might not be the best reflection of the current economy,

given world events, but it does include an easter egg of sorts.

In February, the price of eggs was down more than 40% what it was in February of last year,

as shortages caused by America's longest ever-running avian flu outbreak stabilized.

But that relief in the egg aisle has been offset by rising prices in the meat aisle.

Marketplace's Megan McCarty Carino takes us to the supermarket today.

Like a lot of savvy shoppers when eggs became a luxury good,

I got myself a black market egg dealer.

Well, a family friend who keeps chickens.

So I actually hadn't bought eggs from the grocery store in quite a while.

Okay, I met my local lucky supermarket and looking for the cheapest eggs,

I see a dozen large cage-free eggs, $2.99 been a while since I saw egg prices in the two range.

The national average was $2.50 for a dozen large grade A eggs last month,

after hitting a high of more than $6 a year ago.

The shock was specific, but the high cost of eggs came to feel like a symbol of everything

that was unaffordable, says Gregory Daco, chief economist at UI Parthenon.

The key element when it comes to these price categories is what economists call salience,

which is essentially how visible these prices are to the average consumer.

Stores might not post the price of eggs on giant signs like gas stations,

but consumers have a strong mental anchor of how much a staple should cost.

And so when these prices change, they tend to have an immediate effect not just on consumer

wallets, but also on the psyche of consumers across the US.

But the drop in egg prices might not stretch as far as consumers hope, says David Ortega,

a food economist at Michigan State University.

When we look at sort of the bigger picture, the drop in egg prices has been offset by the rice

and beef prices, and that is because the average American family spends about five times more

on beef than eggs. Beef prices have been climbing for years and aren't likely to come down anytime

soon. The cattle herd is the smallest it's been since the 1960s, and you can't snap your

fingers to increase supply, says Phil Lempert with supermarket guru.

It takes about two years from the time a calf is birthed to the time it winds up on our

supermarket shelf. Now, a new complication, much of the world's fertilizer, key to feeding

those cattle, flows through the street of Hormuz. I'm Megan McCarty-Karino from Marketplace.

Today marked the last day of Paris Fashion Week. It was the final and most anticipated

event of what the industry calls Fashion Month, highlighting the latest trends in apparel.

And while styles change from season to season, and then come back, one thing that hasn't really

evolved with the times is how the industry does sizing, specifically when it comes to women's clothing.

Amanda Sakuma wrote about the chaos that is women's sizing for the visual essay news site

the pudding the other day. Amanda, great to talk with you.

Hi, thanks for having me. So what did you find when it comes to how women's sizing works in American

clothing? I think the biggest thing is just knowing that sizes are wildly inconsistent

from brand brand. They're incentivized essentially to make up their own sizing standards in order

to target their own customer base. So while there are technically universal sizing standards that

exist, manufacturers only loosely follow those guidelines, if at all. And so it just leaves

this scenario where you know, you have to do the trial and error of trying things on in store,

you know, a size eight in one store will not be a size eight in another store and that just leaves

a lot to have to navigate. One of the things that was interesting to me looking at your piece was

that you really lay out how how well sizes fit the average woman changes over the age of a woman.

It's so difficult. I think we have this idea of what is a kind of normal medium sized woman

or just a normal what a normal size is. And I don't think that that correlates with the reality of

humans of modern women in the US especially. And it starts at the age of 15 is around the age when

most girls are able to start wearing women's clothing for the first time. You know, the fifth

percentile, you know, the smallest 15 year olds are able to fit into the smallest sizes and the

largest 15 year olds are able to fit into the largest sizes. But that is both the first and the

last time that they're able to wear women's clothing. Because after that point, as women age,

you know, your size changes as you age, which I think is a very natural thing. And it just creates

this dynamic where as you age, you're getting pushed out of women's sizing options entirely. The

median woman in the US wears a size 18, but the average regular clothing line goes up to only a size 16.

So that means over half of all adult women are essentially pushed out of all regular clothing lines,

which is kind of a problem. And when you say that, you know, half of women are left out of

standard sizes, these are women who are going shopping and basically being made to feel that their

bodies are, you know, outside the norm. It's really hard not to just internalize the struggle of

trying to find clothes that that fit right. It's hard not to kind of take it personally and think

oh, this is just a me problem. But I think this is actually more of a structural problem.

When you have a one size fits all box, it doesn't, it's really hard to fit as many women as possible

into those boxes. And so I think a lot of us are kind of left in a situation where things only

have fit right. Or you need to go for the option that has more, you know, maybe elastic in the

waistline or stretchy material or boxier styles in order to be able to fit into clothes.

How does all this compare to sizing for men's wear?

You know, men do not have to deal with it to quite the same degree. A lot of times their jeans,

or their pants, for example, are based on their waistline measurements. And so they

don't have the same type of arbitrary number system that women do. And there's also just more

of a culture of tailoring and suit making for men that it is just a whole other beast on its own.

How is doing this reporting change the way that you buy clothing?

I don't buy clothing anymore. I first started out sewing kind of as just a hobby and an

interest. And I thought that maybe it would be a good thing to supplement when or just a fun

thing to learn. And I think over time, just being exposed to the sewing community and all of these

realities about how these clothes will never fit just straight off out of the box or straight

off the rack, just kind of knowing that has made it for me really empowering to just try to focus

on making my own clothes. But obviously that's not a realistic solution for the population.

I was going to say that's pretty grim for the average woman to be like, the sizing doesn't work,

so you just have to make your own clothes. It's not a world, it's honestly not a world that I want.

Amanda Sikuma is a freelance journalist and her reason piece is in the pudding you should check

it out. Thanks so much Amanda. Thanks so much.

This final note on the way out today, the Treasury Department put out the latest numbers on the

federal deficit this morning, just over a trillion dollars for the fiscal year through February.

That's about 12% lower than the deficit this time last year helped along by the tear of revenue

generated mostly from US consumers and businesses. But those lower deficit numbers might not be with

us for long. The Supreme Court has thrown out President Trump's Liberation Day tariffs plus one

thing that tends to add to the deficit, a lot, war. Our media production team includes Brian

Allison, John Fokie, Montana Johnson, Drew Jostead, Gary O'Keefe, and Charlton Thorpe. Alex Simpson is

the manager of media production and I'm Kimberly Adams. We'll see you tomorrow everybody.

This is APM. This message is brought to you by the Capital One Venture X card. Venture X offers

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