CPI Review: Expanding the Rigidity of Core Prices

<US March CPI Review and Implications>
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[CPI Review: Expanding the Rigidity of Core Prices]

* Consumer prices in the U.S. in March were 0.4% year-on-year, 3.5% year-on-year, exceeding expectations (0.3% year-on-year and 3.4% year-on-year). Core consumer prices were also 0.4% month-on-month and 3.8% year-on-year, higher than expected (0.3% year-on-year and 3.7% year-on-year)

* The rebound in headline consumer prices is somewhat foreseen due to rising energy prices caused by rising oil prices, but concerns are growing as core consumer prices remain the same as the previous month and prices are becoming more rigid

* More than half of the energy and housing costs contributed to the inflation. As U.S. gasoline retail prices continued to rise since January, energy prices rose for the second consecutive month to 2.3% month-on-month in February and 1.1% month-on-month in March, while housing costs have been steadily increasing positive (+) since May 2020. Both OER and rent were 0.4% month-on-month  

* Core commodity prices fell to -0.2% month-on-month. The drop in prices of used cars (-1.1%) and new cars (-0.2%) is effective. On the other hand, service prices excluding energy remain high at 0.5% month-on-month

* In addition to housing costs, both medical and transportation service prices are burdensome. Medical services are found to have increased hospital treatment costs due to rising labor costs (1.0% from the previous month). The transportation service sector led to relief by the previously concerned airfare falling from 3.6% in February to -0.4% in March, but auto insurance premiums rose 2.6% from the previous month, driving the upward trend in transportation service prices (1.5% from the previous month). The rise in auto insurance premiums is interpreted as reflecting the impact of the rise in car prices, which have been around for some time since the pandemic, with a lag

[Future Path Outlook: Seeking Signs of Price Stabilization Amid Unrest]

* Rising commodity prices due to rising oil prices is an area that the Fed cannot resolve through monetary policy. It is true that upward risk of energy prices has increased, but if oil prices rise above a certain level, demand could weaken, limiting the possibility of a steep rise in commodity prices. Lower commodity prices, which exclude the impact of fluctuations in raw material prices, also limit excessive concerns

* However, in order to gain confidence in price stability in the future, it is necessary to check whether the decline in the housing cost sector, which accounts for 36% of the CPI, could continue. Housing prices rise as existing homeowners who avoid new mortgage loans are reluctant to sell their homes. The burden of housing prices is effective until interest rates are significantly reduced and the supply-demand imbalance in the housing market is resolved. Fortunately, rents have stabilized. Zillow housing rental prices in the U.S. have stabilized at around 3% year-on-year since the second half of last year. According to the housing rental price calculated by the Cleveland Federation, the housing rental price of existing tenants is gradually decreasing, but the housing rental price of new tenants has plummeted. Given that the housing rental price of new tenants precedes the total rent by about four quarters, the rent is likely to stabilize

* Currently, the U.S. economy clearly does not need to hurry to cut interest rates. The conservative approach is valid until there are clear signs of price stability. However, given the falling wages in the service industry and the signs of stabilizing the input price index in the ISM service industry index, the gradual stabilization of prices will be effective if a gradual decline in housing costs is guaranteed in the future