CPI, demystified

Too bad, a lot of it's useless now.

I'm kidding, mostly. From American Public Media, this is Marketplace. From Minnesota Public Radio in St. Paul, I'm Kimberly Adams in Forky-Rostal. It's Wednesday, March 11th, could to have you along.

I'm at APM headquarters today instead of my normal spot in DC. But back in the nation's capital, this morning we got the latest read on inflation

from the Federal Bureau of Labor Statistics.

The Consumer Price Index registered just a 0.3% increase in the month of February. Over the past 12 months, prices rose 2.4%. That's the lowest reading in five years. But there are, as is so often the case, some caveats to what seems like encouraging news. Here to give us her expert opinion on the report is Nicole Servey,

an economist for Wells Fargo, Corporate and Investment Banking. Welcome back to the show. Thanks for having me.

“Can I just get your quick reaction to the top line numbers?”

Yeah, so in terms of the month of a month, those looked pretty good. But if you look at, for instance, the year, we are rates of CPI and Core CPI, they both move sideways. And what the report suggests to me is that, yes, inflation is not as bad as we had feared by this point in time, but we're also not seeing progress either. And now we got to think about this energy price shock.

And so, while this report is encouraging, I do think it feels a little dated at this point in time, especially once we turn to the March CPI and get some of that immediate reaction to what we're seeing in the conflict in the Middle East. Right, this is the giant asterisk on this report, which is that all of this data was before we went to war with the Iran. Correct.

“And so, how are economists do you think factoring that in when reading this report?”

So, if you look at the energy line, for instance, you can see that gasoline prices actually rose pretty solid in February, a little bit stronger than I think you would expect in a, let's say, a quote unquote typical February. And if you also think about the really bad winter storms on the northeast, you wouldn't expect gasoline prices to rise as much as they did. But if you look at what was going on in oil, oil prices were actually rising in February in anticipation of potential escalation in the Middle East.

And you were seeing that risk premium being priced in. And that got directly translated to consumers already in February with a pretty decent gain in gasoline prices. And that gain is only just going to get stronger in March. What does this mean for the Fed, you know, the CPI reading like this might, you know, be encouraging to folks on Wall Street that wanted another interest rate cut. But as you said, this price, this, you know, oil price shock has now come down the pipeline.

And that's going to change everything. Right. And so, one thing that I'll say is an important caveat here is we're looking at the consumer price index. And the Fed, when they actually talk about inflation and what they target, they use a separate measure called the PC deflator. And right now, they're measuring the same thing, the CPI and the PC deflator, so they do tend to track together over time. But right now, there is a pretty unique gap between the two and indices.

So I would just flag that as something to keep an eye on. Right now, if you look at what the CPI implies for the PC deflator, it looks like that inflation is measured by the PC is running a little bit stronger than what the CPI is actually suggesting at this time. And so the Fed is probably on alert, right? This report is showing us, and we don't even have the March data yet, that disinflationary progress is stalling out. And now we're anticipating an energy price shock, and that's just going to make any of the disinflationary pressures that we're hoping for all that much harder.

Now, when you think about how the Fed responds to supply side shocks in general, just over the course of time, they try to look through commodity price shocks in particular, because they tend to be idiosyncratic as we know, and we saw the Fed actually have that impulse back when we're reopening from the pandemic.

They're trying to look through some of that energy price shock initially, but then we ended up reacting to inflation ultimately.

“I think they're going to be a little bit more sensitive because of what we saw in the wake of Russia's invasion of Ukraine, inflation was really strong at that time.”

I think they're going to be more sensitive to an energy price shock today, having learned from that experience. I think all of these data point towards staying more restrictive, I.e. maybe holding rates at their current level for longer than they anticipated before the shock, because of some of that uncertainty related to energy.

Not all that useful, so one thing that I like to say is that inflation is a lagging indicator, and this report feels more lagged than most.

“Nicole Servie is an economist for Wells Fargo Corporate and Investment Banking. Thank you so much.”

Thanks. Wall Street today, oil prices went back up again, sending markets down. We'll have the details when we do the numbers. [Music] [Music] [Music] [Music]

Now, there is some useful info in February, CPI report, even if a lot of it is a bit outdated due to the war.

For example, even though prices overall rose 2.4% year over year as analysts expected, natural gas prices rose at a much faster pace.

“They're up 10.9% compared to the same time last year, and that's before the Iran war threatened to choke off a fifth of the global gas supply.”

Marketplaces know the south photo takes a look. Lots of American households saw higher heating bills this winter, especially in the northeast and Midwest. A big factor is that it was colder than last winter. So about half the increase that we're estimating this in the fact that families just need to use more natural gas. That's Mark Wolff. He heads the National Energy Assistance Directors Association. The cold weather and the higher demand came on top of another trend that's also elevated prices for natural gas.

The rapid growth of data centers means that we need more electricity, and about 40% of the feeder fuel to produce electricity is a natural gas. The consumer advocacy group power lines says three and five Americans are feeling financially stressed because of rising utility bills.

“Over the last few months, the cost pressures added up Wolff says eight groups he works with have been reporting a lot more need.”

People that didn't really pay attention to the utility bills in the past and now paying attention. We're hearing from, you know, moderate income and even some middle class families are asking if there's any help to pay their bills.

We never saw that before as usually just the very poor.

Could the Iran conflict make the situation worse? Well, in Asia and Europe, natural gas prices have been soaring because liquified natural gas exports from the Middle East have been interrupted. But for the US, there's some good news says Ken Medlock, energy economist at Rice University. North America, not just the United States, has been largely shielded on the natural gas front from what's going on in the rest of the world. That's because the US actually produces plenty of natural gas. It even exports a growing portion of what it makes.

And Tom sang this is Professor of Energy Finance at Texas Christian University says natural gas prices in the US should actually come down soon. We're almost mid-March heading into April, April's, you know, a very much a low demand period for natural gas domestically. That's kind of helping the situation. Meaning Americans are likely to see some relief from the higher bills they've been paying. A natural gas prices here in the US should remain relatively affordable compared to what's happening in the rest of the world.

I'm Novassoff, a former marketplace. Look, this story is changing quickly. But we've got you covered. Be sure to listen to David Brown Cachio and our Marketplace Morning Report team to get the latest on how this war is affecting the global economy and your personal economy too. Give it a listen every weekday morning.

Energy prices aside, inflation over the past year has been a lot more muted than economists expected. That's despite the fact that the President's tariffs are still making imported goods more expensive. Now, a handful of factors are holding inflation back. Trade agreements, exemptions for various industries, and a lot of companies are just absorbing the costs of tariffs rather than passing it along to customers.

I know that all sounds contradictory, but Marketplace's just-in-home will make it make sense.

“Despite definition, our taxes on imported goods, they make those products more expensive.”

Thing is, tariff policy over the last year has been erratic, and the uncertainty that's generated has its own side effects. We compare it to a broken traffic light at a four-way stop. Megan Schoenberger is senior economists with KPMG.

When there's a broken traffic light, cars slow down, they stop, they make you turns and never make it to their destination at all.

That's exactly how uncertainty acts for households and firms. households and firms might buy fewer big ticket items and make fewer investments. Companies might hold off on hiring, in other words, the economy could slow down. There's a possibility, right, they could slow economic growth to such an extent that they're disinflationary or even deflationary. Researchers from the San Francisco Federal Reserve recently found that over the last 150 years tariffs and all the uncertainty they create have led the lower economic activity.

And as a result, lower inflation.

“I will say that I actually don't find it that surprising.”

That's Robert Johnson, a professor at the University of Notre Dame.

He's also studied how tariffs can reduce inflation.

He says it's not just the uncertainty. The president's trade policies are sending a message that there is a deep undercurrent of anti-trade sentiment in the US and that the US is going to pull back from international trade. Johnson says being open to international trade allows countries to specialize on what they're good at. Textiles or electronics or sophisticated technology. And when a country focuses on what it's good at, Johnson says it makes more money.

And so if we close ourselves off to international trade, we lose the gains from that ability to focus our economic activities on the places and the things that we're best at. Johnson says that can cause companies to start worrying about their own revenue in the future. So they're going to spend less today. And as a result of that, a lower amount of spending typically translates into lower inflation in the macro economy. Another factor that's been holding back inflation is that many businesses are trying to avoid raising prices.

So they're spending less on research, marketing, and employees. And one of the big things we've seen over the last year is a very sharp drop in hiring. Ed Gresser is director for trade and global markets with the progressive policy institute. It may be that one of the ways they've found to manage this is to take money on labor and that wouldn't have inflationary effect. But if the labor market keeps weakening, the economy could get stuck in a vicious circle.

Megan Schoenberger at KPMG says people who are concerned about their jobs. Look at a product that's getting hit with a tariff and decide it's just not worth it.

“I think that would be a big test because if people just start to refuse to purchase these items, that in itself can be disinflationary.”

And if that's the case, sure tariffs have brought down inflation. But the economy would have much bigger problems. I'm Justin Howe for Marketplace. [Music] Coming up.

You know, a size 8 in one store will not be a size 8 in another store. The struggle is real. But first, the numbers. The Dow Jones Industrial Average declined 289.6 tons of a percent to close at 47,417. The Nasdaq picked up 19.110 to finish at 22,716.

And the S&P 500 lost 5.110 to end at 6775. Nova was just talking about the rise in natural gas prices in the US, which happened even before the war with Iran. Major US producers of natural gas did well on the market today. Exxon Mobile Corporation rose 2 and a third percent.

Chevron increased 3 percent.

Conoco Phillips added 2 and a half percent. The International Energy Agency said its members would release a record 400 million barrels of oil from its stockpile. Brent Crude settled it about 92 dollars a barrel. And we mentioned yesterday that cloud infrastructure for an oracle delivered a robust earnings report. Today oracle Corporation leaped 9 and 210 percent.

Bond's fell the yield on the 10 year keynote rose to 4.22 percent in your listening to marketplace. [Music]

Today's CPI report might not be the best reflection of the current economy given world events. But it does include an easter egg of sorts.

In February, the price of eggs was down more than 40 percent.

What it was in February of last year as shortages caused by America's longest ever running avian flu outbreak stabilized. But that relief in the egg aisle has been offset by rising prices in the meat aisle. Marketplace's Meghan Maccardi Carino takes us to the supermarket today. Like a lot of savvy shoppers when eggs became a luxury good. I got myself a black market egg dealer.

Well, a family friend who keeps chickens. So I actually hadn't bought eggs from the grocery store in quite a while. Okay, I'm at my local lucky supermarket and looking for the cheapest eggs I see.

It does in large cage free eggs 299.

Then a while since I saw egg prices in the two range. The national average was 250 for a dozen large grade eggs last month. After hitting a high of more than six dollars a year ago, the shock was specific. But the high cost of eggs came to feel like a symbol of everything that was unaffordable.

Says Gregory Daco, chief economist at UI Parthenon.

“The key element when it comes to these price categories is what economists call salience,”

which is essentially how visible these prices are to the average consumer.

Stores might not post the price of eggs on giant signs like gas stations,

but consumers have a strong mental anchor of how much a staple should cost. And so when these prices change, they tend to have an immediate effect not just on consumer wallets, but also on the psyche of consumers across the US. But the drop in egg prices might not stretch as far as consumers hope, says David Ortega, a food economist at Michigan State University.

When we look at sort of the bigger picture, the drop in egg prices has been offset by the rice and beef prices. And that is because the average American family spends about five times more on beef than eggs. Beef prices have been climbing for years and aren't likely to come down anytime soon. The cattle herd is the smallest it's been since the 1960s.

And you can't snap your fingers to increase supply, says Phil Lempert with supermarket guru. It takes about two years from the time a calf is birth to the time it winds up on our supermarket shelf.

“Now a new complication, much of the world's fertilizer, key to feeding those cattle,”

flows through the street of hormones. I'm Megan McCarty Carino from Marketplace. Today marks the last day of Paris Fashion Week. It was the final and most anticipated event of what the industry calls fashion month, highlighting the latest trends in a peril.

And while styles change from season to season and then come back, one thing that hasn't really evolved with the times is how the industry does sizing, specifically when it comes to women's clothing. Amanda Sakuma wrote about the chaos that is women's sizing for the visual essay news site, the pudding the other day, Amanda, great to talk with you.

Hi, thanks for having me. So what did you find when it comes to how women's sizing works in American clothing? I think the biggest thing is just knowing that sizes are wildly inconsistent from brand brand. They're incentivized essentially to make up their own sizing standards in order to target their own customer base. So while there are technically universal sizing standards that exist,

many factors only loosely follow those guidelines if at all.

“And so it just leaves this scenario where you have to do the trial and error of trying things on and store,”

you know, a size eight in one store will not be a size eight in another store, and that just leaves a lot to have to navigate. One of the things that was interesting to me looking at your piece was that you really lay out how well sizes fit the average woman changes over the age of a woman. It's so difficult. I think we have this idea of what is a kind of normal medium sized woman or just a normal size is.

And it starts at the age of 15 is around the age when most girls are able to start wearing women's clothing for the first time.

You know, the fifth percentile, you know, the smallest 15 year olds are able to fit into the smallest sizes. And the largest 15 year olds are able to fit into the largest sizes.

“But that is both the first and the last time that they're able to wear women's clothing because after that point as women age, you know, you your size changes as you age, which I think is a very natural thing.”

And it just creates a dynamic where as you age, you're getting pushed out of women's sizing options entirely.

The median woman in the US wears a size 18, but the average regular clothing line goes up to only a size 16.

So that means over half of all adult women are essentially pushed out of all regular clothing lines, which is kind of a problem. And when you say that, you know, half of women are left out of standard sizes, these are women who are going shopping and basically being made to feel that their bodies are, you know, outside the norm. It's really hard not to just internalize the struggle of trying to find clothes that that fit right it's hard not to kind of take it personally and think it's, oh, this is just a me problem.

“But I think this is actually more of a structural problem when you have a one size fits all box.”

It doesn't it's really hard to fit as many women as possible into those boxes. So I think a lot of us are kind of left in a situation where things only have fit right or you need to go for the option that has more, you know, maybe elastic in the waistline or stretchy material or box of your styles in order to be able to fit into clothes. How does all this compare to sizing from men's wear? Do not have to deal with it to quite the same degree. A lot of times they're jeans for or their pants, for example, are based on their waistline measurements.

And so they, they don't have the same type of arbitrary number system that women do. And there's also just more of a culture of tailoring and and suitmaking for men that it is just a whole other beast on its own. How is doing this reporting changed the way that you buy clothing? I don't buy clothing anymore. I first started out sewing kind of as just a hobby and an interest and I thought that maybe it would be a good thing to supplement when or just a fun thing to learn.

And I think over time to just being exposed to the sewing community and all of these realities about how these clothes will never fit just straight off out of the box or straight off the rack.

Just kind of knowing that has made it for me really empowering to just try to focus on making my own clothes, but obviously that's not a realistic solution for the population. I would say that's pretty grim for the average woman to be like the sizing doesn't work, so you just have to make your own clothes. No, not good. It's not a world, it's honestly not a world that I want.

“Amanda Sikuma is a freelance journalist and her recent piece is in the pudding. You should check it out. Thanks so much Amanda.”

Thanks so much. This final note on the way out today, the Treasury Department put out the latest numbers on the federal deficit this morning, just over a trillion dollars for the fiscal year through February. That's about 12% lower than the deficit this time last year, helped along by the tariff revenue generated mostly from U.S. consumers and businesses. But those lower deficit numbers might not be with us for long. Supreme Court has thrown out President Trump's liberation day tariffs, plus one thing that tends to add to the deficit a lot, war.

Our media production team includes Brian Allison, John Focke, Montana Johnson, Drew Jostead, Gary O'Keefe and Charlton Thorpe. Alex Simpson is the manager of media production, and I'm Kimberly Adams. We'll see you tomorrow, everybody. [Music]

Hey everyone, it's Reemacherase, and this week on my podcast, this is Uncomfortable. I'm talking with someone

“that a lot of us grew up watching. Steve Burns from Blues Clues. Steve opens up about stumbling into the job in his early 20s and suddenly becoming a household name.”

But behind the scenes, things were more complicated, especially when it came to money and figuring out who he was outside the show.

People knew Steve, the Green Stripey Steve, and I felt like Green Stripey Steve sort of ate Steve Burns, and there was no Steve Burns anymore.

Be sure to catch my conversation with Steve on this is Uncomfortable wherever you get your podcasts.