Seasonally adjusted CPI was up 0.1% in March

See Table 1. Consumer Price Index for All Urban Consumers (CPI-U): U. S. city average, by expenditure category from the U.S. Bureau of Labor Statistics.

If we went up 0.1% every month then the annual inflation rate would be just 1.2%.

But the BLS reports "The index for all items less food and energy rose 0.4 percent in March, after rising 0.5 percent in February." This is usually called the core inflation rate since food and energy prices are considered more volatile than those of most goods. If prices were to go up that much every month for 12 months then the annual inflation rate would be 4.9%. That would be too high and sometimes the core rate is a better predictor of the future inflation rate than the overall rate.

The core inflation rate over the last 12 months was 5.6%.

The overall CPI was 5.0% higher in March 2023 than in March 2022 since 301.836/287.504 = 1.05. That number is not seasonally adjusted.

The CPI was 296.808 in Sept. of 2022. That means that the non-seasonally adjusted CPI is up 1.69%  in the last six months. If we went up at that rate for a whole year we would have a 3.42% inflation rate. That is not great since it is above the 2% target the Federal Reserve sets (although they use a different index, the PCE or personal consumption expenditures price index-more on this below-the PCE was 5.0% higher in Feb. 2023 than it was in Feb. 2022). But that is better than the last two years of 7.0 & 6.5%

The seasonally adjusted CPI is 1.82% in the last six months for a 3.68% annual rate. Again, a little high, but better than 8.0% and 4.7% for the seasonally adjusted inflation rates in each of the last two years. The seasonally adjusted CPI was 5.0% higher in March 2023 than it was in March 2022.

The Bureau of Labor Statistics makes seasonal adjustments and that is why prices were reported to have gone up. See Consumer Price Index Summary. Here is what it says:

"Use of Seasonally Adjusted and Unadjusted 

 

Data The Consumer Price Index (CPI) produces both unadjusted and seasonally adjusted data. Seasonally adjusted data are computed using seasonal factors derived by the X-13ARIMA-SEATS seasonal adjustment method. These factors are updated each February, and the new factors are used to revise the previous 5 years of seasonally adjusted data. The factors are available at www.bls.gov/cpi/tables/seasonal-adjustment/seasonal-factors-2022.xlsx. For more information on data revision scheduling, please see the Factsheet on Seasonal Adjustment at www.bls.gov/cpi/seasonal-adjustment/questions-and-answers.htm and the Timeline of Seasonal Adjustment Methodological Changes at www.bls.gov/cpi/seasonal-adjustment/timeline-seasonal-adjustment-methodology-changes.htm. 

 

For analyzing short-term price trends in the economy, seasonally adjusted changes are usually preferred since they eliminate the effect of changes that normally occur at the same time and in about the same magnitude every year-such as price movements resulting from weather events, production cycles, model changeovers, holidays, and sales. This allows data users to focus on changes that are not typical for the time of year. The unadjusted data are of primary interest to consumers concerned about the prices they actually pay. Unadjusted data are also used extensively for escalation purposes. Many collective bargaining contract agreements and pension plans, for example, tie compensation changes to the Consumer Price Index before adjustment for seasonal variation. BLS advises against the use of seasonally adjusted data in escalation agreements because seasonally adjusted series are revised annually."

The Fed prefers to use the PCE. See CPI vs. PCE: Untangling the Alphabet Soup of Inflation Gauges-Fed’s preferred measure of consumer-price growth may not be the one you think, but both have their place by Jo Craven McGinty of the WSJ.

PCE stands for personal consumption expenditures price index. Excerpts from the WSJ article:

"But when the Fed reviews economic conditions to decide what actions it will take to influence inflation and employment, it sets aside the century-old measure [CPI] in favor of something called the personal consumption expenditures price index [PCE].

The PCE includes a broader range of expenditures than CPI. It’s weighted according to data provided in business surveys, rather than the less reliable consumer surveys used to weight the CPI. And it uses a formula that adjusts for changes in consumer behavior that occur in the short term, something the standard CPI formula doesn’t do.

The result is a more comprehensive, if less familiar, gauge of inflation. That’s important for the Fed, which regards a small amount of inflation as a sign of a healthy, growing economy."

"Like CPI, PCE tracks changes in real prices paid by consumers for goods and services, but the two indexes differ in several important ways. For starters, the CPI, which typically is slightly higher than the PCE, captures only what urban consumers spend out-of-pocket for a common basket of goods and services.

“It represents what an average consumer buys in a typical year,” said François R. Velde, a senior economist with the Federal Reserve Bank of Chicago. “If it costs $1,000 this year and $1,200 the following year, it gives you an idea of how much the value of money has gone down.”

PCE, on the other hand, includes all goods and services consumed in the U.S. whether they are purchased by consumers or by employers or federal programs on behalf of consumers.

Medical expenses provide a good example of the differences in approach the gauges take. The CPI includes only the co-payments paid directly by consumers in its calculation, while the PCE captures co-payments as well as costs covered by employer-provided insurance and government programs."

"PCE, which is published by the U.S. Commerce Department’s Bureau of Economic Analysis, is derived from retail-sales data collected in business surveys, and in this data, medical care tends to carry the greatest weight. The CPI, on the other hand, is derived from consumer purchases reported in household surveys. Typically, consumers report spending more on shelter than anything else, giving that category more weight in the CPI."

"The CPI uses fixed weights generated from a basket of goods that is updated every two years, which doesn’t allow for the introduction of new products or price changes in the interim that might cause consumers to substitute one item for another.

The PCE accounts for this by using chained weighting. For example, if apples suddenly become very expensive, consumers may not buy as many. As a result, the apples will have one weight in one reporting period, and a different weight in the next. The chain-weight index essentially takes the average of the two."

Other related links:

See Consumer Price Index for All Urban Consumers: All Items in U.S. City Average from FRED (Federal Reserve Economic Data) compiled by the Research Division at the Federal Reserve Bank of St. Louis.

Consumer Price Index Data from 1913 to 2023

Inflation gauge increased 0.4% in February, as expected and up 6% from a year ago

Personal Consumption Expenditures Price Index