The overall CPI rose 0.9 percent in March, driven by a 21.2 percent increase in the price of gas. Most other areas of the index were remarkably tame. The core CPI rose just 0.2 percent in March and the index for store-bought food actually fell 0.2 percent. Over the last year, the increase in the overall CPI has been 3.3 percent, while the increase in the core has been 2.6 percent.

We will see another jump in gas prices in April, but it will likely be close to 7.0 percent, considerably less than the April rise. However, we are unlikely to see another fall in food prices. Higher transportation costs will be pushing food prices higher. This process will take time, assuming gas prices remain high, but at least some of the increase in costs is likely to show up in May. As a result, food prices are likely to increase at least 0.2-0.3 percent, ensuring that the overall CPI will again be well above the core in April.

Other Energy Prices to Rise More in April

While gas prices jumped in March due to the war, inflation in the other components of the energy index was modest. Electricity prices rose 0.8 percent, bringing its year-over-year increase to 4.6 percent. The price of piped gas actually fell 0.9 percent. That drop is likely to be reversed in April. As a result, the energy index will rise close to 4.0 percent in April, down from the 12.5 percent jump in the index in March.

Rental Inflation Accelerates Due to the Mistaken Treatment of the Missing Data in October

BLS was unable to collect data in October due to the shutdown. This meant that it had to impute an increase in rents for the month rather than rely on the data collected. BLS effectively imputed a zero-rent increase for the month. Since the monthly inflation measure includes an average for the prior six months, October’s zero had been included through March.

The rent-proper index increased 0.2 percent in March, while the owners’ equivalent rent index rose 0.3 percent. The indexes will likely round to the same figures for April, but carrying to the next decimal, the increase will be 0.04-0.05 percentage points higher. Since the rent indexes account for almost 34.0 percent of the overall CPI, and more than 42.0 percent of the core index, this will add 0.02-0.03 percentage points to the CPI for April.

The year-over-year increases in the rent indexes will also edge higher, from 2.6 percent to 2.8 percent in the rent-proper index and from 3.1 percent to 3.3 percent in the owners’ equivalent rent index.

Medical Services to Show Substantial Increase

The medical services index, which accounts for 7.0 percent of the CPI, was flat in March due to a 1.4 percent drop in the medical insurance index. It is highly unlikely that this sort of drop will be repeated. The professional medical services index rose 0.5 percent in March, while the hospital services index rose 0.2 percent. These two indexes will both show comparable increases in April, which means with a flat or rising hospital insurance index, the medical services index will increase in the range of 0.3-0.4 percent.

Transportation Services Index Will Again Have a Substantial Increase

In March, the transportation services index, which accounts for 6.4 percent of the CPI, increased by 0.6 percent. This was driven largely by a 2.7 percent jump in the airfares index and a 1.3 percent rise in the car repair index. The airfare index is virtually certain to show another large increase in April, driven by higher fuel prices. The index was held down by the auto insurance index. This index accounts for 2.7 percent of the overall CPI and was flat in March. It is likely to show some increase in April, possibly leading to a rise in the transportation index in April that is even larger than March’s 0.7 percent.

New and Used Vehicles to Show More Rapid Price Increases

The new vehicle index rose 0.1 percent in March and is up 0.5 percent over the last year. That is considerably less than the 1.0 percent and 1.6 percent increase over the last year in the car and light truck indexes in the producer price index. There will be some catch up in the CPI index, which may occur partly in April.

There is a similar story with the used vehicle index, which fell 0.4 percent in March and is down 3.4 percent over the last year. This index is likely to show at least a modest 0.2-0.4 percent increase in April.

Other Commodities to Show Modest Increases

Most other commodities have been showing modest price increases in recent months. The price of items like apparel, appliances, and furniture had been dropping at close to a 1.0 percent annual rate in 2024, before the threat and reality of tariffs reversed the decline. The ending of the tariffs should be helpful, although the tariffs had not yet been fully passed through by the time of the Court decision. These items will probably again show an increase in April close to 0.1 percent.

Overall Picture: Another Month of High Inflation

The 0.9 percent rise in the March CPI was the largest increase since a 1.2 percent rise in June of 2022, which was also driven by a spike in gas prices, at that time from Russia’s invasion of Ukraine. The rise in April CPI will be somewhat lower as the percentage increase in gas prices in the month was considerably less. However, other components, like food prices, medical service prices, and vehicle prices (both new and used) are almost certain to show larger increases. As a result, the overall CPI is likely to increase in the range of 0.6-0.7 percent, bringing the increase over the last year to 3.7 percent to 3.8 percent.

The core index will rise by between 0.3-0.4 percent, which will bring its increase over the last year to between 2.7-2.8 percent. With wage growth remaining moderate, all the inflation is coming from costs directly or indirectly associated with the tariffs or the war. The future course of inflation will depend on how these policies shake out in coming months.