Friday, April 12, 2013

How lower gas prices are impacting the CPI, retail sales, and real wages

- by New Deal democrat

I put together a bunch of graphs to throw up on this, but haven't had the time. Maybe I can update later today. But in the meantime ... gas prices at the pump have gone down almost 10% since the end of February. This is having an impact on lots of the data, including this morning's retail sales number.

As a general rule, if you take the month over month percentage change in gas prices, divide by ten, and then add 0.1% or 0.2%, you'll come pretty close to month over month non-seasonally adjusted CPI. The average gas price in March was only 1% higher than the average price in February. Dividing by 10 gives us +0.1%, meaning NSA March CPI should be up around +0.2% or +0.3%. We're already down about another -03% in April. Should that hold up as the average change between March and April, the NSA April CPI will be down -0.1% or -0.2%.

BUT, the seasonal adjustment expects prices to rise significantly in March and April, so the March SA is about -0.4% and the April SA is about -0.3%.

Factoring in the seasonal adjustments gives us an anticipated March CPI of -0.1% or -0.2%, and would give us an April CPI of -0.4% or -0.5%. Since the CPI increase for March and April 2012 were +0.3% and 0.0%, that decreases the YoY CPI something like -0.8% for a net YoY CPI change of +1.2%.

While unadjusted retail sales were down -0.4% today, after adjusting for inflation they are likely to be down only about -0.2% or -0.3%. In fact, it's worth bearing in mind that, ex-gas, March retail sales were only off -0.2%.

We found out last Friday that wages were down $-0.01. If we get the negative CPI print, it will turn out that real wages actually increased in March, and are likely to increase in April as well. That will be the best change in real wages for the average consumer in over 2 years.

So we have a battle between the positive effect of decreasing gas prices on the one hand, and increased payroll taxes and the impact of ridiculous Austerian economic policy in Washington on the other. If the latter prevails, then the blame for a new recession will lay squarely at the feet of those Washington politicians of both political parties who have been pushing contractionary economic policies.