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Non-Core Deflation Upsets the Consumer Price Applecart in April

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Bureau of Labor Statistics releases Consumer Price Index data for April

On May 22, the Bureau of Labor Statistics (or BLS) released its Consumer Price Index (or CPI) report for April. Consumer prices rose 0.1% in April over March’s levels. But on a year-over-year basis, consumer prices actually declined by 0.2%. Core inflation rose 0.3% month-over-month and 1.8% year-over-year. Core inflation measures price changes, excluding the more volatile food and energy components.

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Energy, food price trends

The overall decline in the CPI was fueled by deflationary trends in non-core items such as energy and food. Energy prices fell 1.3% month-over-month in April. On an annual basis, the energy index plunged a staggering 18.9% on a seasonally adjusted basis, with the gasoline index falling ~31.7%. The crash in crude oil prices last year affected energy prices. Energy prices in April were almost half of what they were a year ago[1. West Texas Intermediate prices, Energy Information Administration].

The prognosis was more mixed for food prices. While the food at home index slipped 0.2% month-over-month, food away from home rose 0.2%. The trend in lower food prices will likely affect the top line for major retailers and grocers, including Walmart (WMT), Ahold (AHONY), Costco (COST), and SuperValu (SVU). We’ll take a closer look at food deflation and its causes and effects in the next part of this series.

The SPDR S&P Retail ETF (XRT) provides exposure to the retail sector. It invests 15.2% of its holdings in food retailers, general merchandise stores, and hypermarkets.

Consumption trends

The BLS’s CPI report also revealed important price trends that affect the overall food and beverage industry. In this series, we’ll analyze these in the context of company performance. We’ll also look at the factors that influence price movements in Part 6.

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