Plunge in Apparel Prices Slows Inflation in March

Prices Byte by Dean Baker

For Immediate Release: April 16, 2008
Contact: Alan Barber, (202) 293-5380 x115

"The price of imports from China has risen at a 7.0 percent annual rate this year."

A reported 1.3 percent decline in apparel prices kept the increase in the overall CPI down to 0.3 percent in March and the increase in the core CPI down to 0.2 percent. The overall CPI has now increased at a 3.1 percent annual rate over the last three months, compared to a 4.0 percent rate over the last year. The core index has increased at just a 2.0 percent rate over the quarter, compared with a 2.4 percent rate over the last year.

In addition to the reported fall in apparel prices, there were several other anomalies that held inflation down in March. Hotel prices fell by 0.6 percent after dropping by 1.2 percent in February. Clearly this rate of decline will not be sustained. Medical care costs rose by just 0.1 percent for the second consecutive month. It is unlikely that health care costs have suddenly been contained. Tobacco prices were also reported as falling, a rare occurrence given the policy of raising cigarette taxes to discourage consumption, although the decline was just 0.1 percent. There were no obvious anomalies raising the rate of inflation in March.

One real factor containing inflation is the slowing of rental price increases. Owners’ equivalent rent, a measure that excludes utility costs, rose by just 0.2 percent in March. It has now risen at just a 2.5 percent annual rate over the last quarter, well below the rate of inflation. The rent proper index has risen at a 3.1 percent annual rate over this period, with the difference likely explained by higher utility costs that are often included in the rent paid by tenants.