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U.S. Bureau of Labor Statistics/Jordan M. Schultz, Medill

The consumer price index for all items has steadily increased in recent years, but a downturn since February is leaving some economists concerned about deflation.

Consumer Price Index falls on gas decline, sparks deflation concerns

by Jordan Monroe Schultz
May 16, 2013

Sparking concern over possible deflation, the national Consumer Price Index decreased 0.4 percent in April from March, while the Chicago-area CPI remained unchanged. The index is seen as an indicator of inflation.

The U.S. Bureau of Labor Statistics reported Thursday a seasonally adjusted 0.4 percent decrease nationally in April while the unadjusted local index did not change. The national decline was fueled primarily by lower gasoline prices, which contributed to a total 4.3 percent decrease in the energy index. The food index rose only slightly: 0.2 percent.

Diane Swonk, chief economist at Mesirow Financial Holdings Inc., expressed concern over CPI’s prominence in indicating inflation. In a blog post, she wrote that the personal consumption expenditure deflator, which, unlike CPI, weights consumer spending shifts across sectors and includes more services, more accurately demonstrates prices that consumers actually pay.

Reported previously by the U.S. Bureau of Economic Analysis, the PCE deflator declined 0.1 percent in March from February.

“No matter how the price data is cut, all indicators of inflation show a disturbing trend toward decelerating price inflation,” Swonk wrote online. “Moreover, all price measures suggest we are getting dangerously close to losing any buffer zone on inflation, which is extremely costly.”

Brian Wesbury, chief economist at First Trust Portfolios LP, and Bob Stein, deputy chief economist, also believe the PCE deflator is running low. They, however, expect an upcoming rise in inflation, they wrote in a blog post. “We don’t expect this to last. Inflation is bottoming out right now and will be noticeably higher a year from now.”

The national CPI for all products, excluding the volatile food and energy, grew 0.1 percent in April.

Locally, energy and food prices fell 1.1 percent and 0.9 percent respectively. Education and communication prices also decreased, while apparel, shelter and household furnishings and operations prices primarily offset any downward pressure. The local index less food and energy grew 0.4 percent over the month.

“Separately, it is extremely important to delineate between inflation or the change in price levels and actual prices. Gasoline prices remain elevated, for instance, despite recent declines,” Swonk wrote.

Similarly, David Breuhan, vice president and portfolio manager at Gregory J. Schwartz & Co. Inc., distinguishes between CPI inflation and “pocketbook inflation,” he said in an interview. “You can exclude it on paper, but it doesn’t mean you can exclude it in the household.”

The Chicago-Gary-Kenosha region comprises 16 counties with a total population of 9.7 million as of 2010.

Over the past 12 months, the national all-items index grew 1.1 percent, the smallest 12-month increase since November 2010. Less food and energy, the index increased 1.7 percent.

The Chicago-area all items index grew 0.9 percent; excluding food and energy it rose 1.6 percent over the year.