{"id":2420263,"date":"2025-05-13T14:58:01","date_gmt":"2025-05-13T18:58:01","guid":{"rendered":"https:\/\/monetizemail.com\/magatoon\/?p=2420263"},"modified":"2025-05-13T19:57:26","modified_gmt":"2025-05-13T23:57:26","slug":"aprils-prices-rose-but-inflation-cooled-overall","status":"publish","type":"post","link":"https:\/\/monetizemail.com\/magatoon\/2025\/05\/13\/aprils-prices-rose-but-inflation-cooled-overall\/","title":{"rendered":"April’s Prices Rose, But Inflation Cooled Overall"},"content":{"rendered":"

After slight deflation in March, prices rose again in April. The Bureau of Labor Statistics (BLS) reports<\/a> that the Consumer Price Index (CPI) increased 0.2 percent last month. Over the past year, it rose 2.3 percent. \u201cThe April change was the smallest 12-month increase in the all items index since February 2021,\u201d BLS notes. This is welcome news for those of us hoping for continued disinflation.<\/p>\n

Shelter prices increased 0.3 percent last month, \u201caccounting for more than half of the all items monthly increase.\u201d That\u2019s because shelter makes up a large part of the CPI\u2014nearly a third of the index, approximating its share in the average household\u2019s budget. Also, energy prices increased sharply. They\u2019re up 0.7 percent on the month, driven primarily by natural gas and electricity. There\u2019s likely a significant seasonality component here.<\/p>\n

Core CPI, which excludes volatile food and energy prices, rose 0.2 percent last month and 2.8 percent last year. This is the slowest it has grown<\/a> since March 2021. Again, this is evidence of persistent disinflation.<\/p>\n

The Federal Open Market Committee (FOMC) recently decided to keep the target for the Fed funds rate range unchanged<\/a>. It\u2019s still 4.25 to 4.50 percent. Adjusting for inflation using the twelve-month headline CPI figure yields a real fed funds target range of 1.95 to 2.20 percent. Alternatively, adjusting for inflation using the annualized three-month headline CPI figure of 1.6 percent yields a real fed funds target range of 2.65 to 2.90 percent.<\/p>\n

Let\u2019s consult the Fed\u2019s estimates for the natural rate of interest<\/a> to see whether current market rates represent appropriate monetary policy. The New York Fed puts the natural rate of interest between<\/a> 0.80 and 1.31 percent in 2024:Q3. The Richmond Fed lists a much larger range<\/a>: 1.15 to 2.61 percent, with a median of 1.86 percent. The real federal funds rate target range is above the New York Fed\u2019s estimates and the Richmond Fed\u2019s median estimates, regardless of whether the twelve-month or three-month CPI measure is used. The real federal funds rate target range constructed from the twelve-month CPI measure is below the upper end of the range offered by the Richmond Fed, while the range constructed from the three-month CPI measure exceeds it. Taken together, the interest rate evidence suggests monetary policy is somewhere between neutral and tight.<\/p>\n

We should also consult monetary data, comparing money supply growth to money demand growth. The M2 money supply<\/a> is up 4.18 percent over the past year. Broader liquidity-weighted measures are rising between<\/a> 3.41 and 3.51 percent per year. On the other side of the market, we have money demand, which we can proxy by adding US population growth to real GDP growth. Population growth<\/a> is about 1 percent, whereas real GDP growth<\/a> is about 2.05 percent. Hence money demand is growing roughly 3.05 percent per year. All measures of the money supply are rising faster than this, suggesting loose money. This is an interesting divergence from the picture we get from interest rate data.<\/p>\n

The discrepancy comes down to a statistical quirk. Although real GDP is still growing on an annualized basis, it actually shrank a bit<\/a> in 2025:Q1. The reason was a temporary surge in imports, as households and businesses tried to get ahead of impending tariffs.\u00a0<\/p>\n

But this doesn\u2019t actually mean the US economy is poorer. Domestic spending on consumption and investment remained strong<\/a>. Some spending was temporarily diverted to foreign production rather than domestic production, in anticipation of tariff-induced price hikes. A single quarter\u2019s decline in measured production isn\u2019t a reliable indicator of a coming recession.\u00a0<\/p>\n

Especially when it comes to categorizing imports, we should be careful not to confuse<\/a> accounting conventions for economic analysis. Furthermore, many analysts predict a return to growth next quarter. The Wall Street Journal\u2019s<\/em> forecasting average<\/a> is 0.8 percent growth in 2025:Q2. Money demand is likely growing more rapidly than we think. The money supply is probably increasing as fast as it ought to.<\/p>\n

The FOMC was right to keep rates where they are. Monetary policy is probably slightly tighter than neutral, which is where we want it to foster broad-based disinflation without damaging the economy. As always, we need to pay attention to future data releases, especially the Fed\u2019s preferred price index, called the Personal Consumption Expenditures Price Index<\/a> (PCEPI). But policy looks approximately correct for now. Given the Fed\u2019s monumental errors<\/a> in recent years, we should be grateful it\u2019s getting up to speed.<\/p>\n

The post April's Prices Rose, But Inflation Cooled Overall<\/a> was first published by the American Institute for Economic Research (AIER)<\/a>, and is republished here with permission. Please support their efforts.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

After slight deflation in March, prices rose again in April. The Bureau of Labor Statistics (BLS) reports that the Consumer Price Index (CPI) increased 0.2 percent last month. Over the past year, it rose 2.3 percent. \u201cThe April change was the smallest 12-month increase in the all items index since February 2021,\u201d BLS notes. This …<\/p>\n","protected":false},"author":12,"featured_media":2324418,"comment_status":"close","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[59],"tags":[],"class_list":["post-2420263","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics"],"_links":{"self":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2420263","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/users\/12"}],"replies":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/comments?post=2420263"}],"version-history":[{"count":1,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2420263\/revisions"}],"predecessor-version":[{"id":2420264,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2420263\/revisions\/2420264"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/media\/2324418"}],"wp:attachment":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/media?parent=2420263"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/categories?post=2420263"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/tags?post=2420263"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}