U.S. inflation eased to 5% in March, the ninth consecutive decrease since peaking in June 2022.
The consumer price index (CPI), which measures the price fluctuations of a broad basket of goods and services in the U.S., rose 0.1% in March after increasing 0.4% in February, the U.S. Bureau of Labor Statistics (BLS) reported Wednesday.
The shelter index was the largest contributor to the monthly all-index increase, rising 0.6% in March and offsetting significant declines in the energy index. Major decreases in the energy index were seen in energy commodities (-4.6%), gasoline (-4.6%), fuel oil (-4.0%), energy services (-2.3%), electricity (-0.7%), and utility gas services (-7.1%).
While signs of declining energy prices were evident in the latest CPI data, BLS did not factor in the recent cut to oil production announced by OPEC+ in early April, which is currently driving energy prices higher for the next CPI report.
Wednesday’s CPI report will likely keep the Fed “on track for another rate hike,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office, in an email to The Wall Street Journal (WSJ).
Although inflationary price increases are decelerating, the Federal Reserve has said it will need consistent evidence of disinflation before considering the idea of rate cuts.
“It is important that we sustain that confidence with our actions as well as our words,” Fed Chairman Jerome Powell told reporters in March.
This sentiment is shared by former Fed Vice Chair Donald Kohn, who believes that pausing interest rates “would cause disruption.”
Backing away from further rate hikes would “signal that [Federal Reserve members] don’t have confidence in their financial stability tools,” said Kohn, per the WSJ.
Last month, the Fed raised the target range on its Federal Funds rate from 4.75% to 5%, the highest level since the lead-up to the 2008-2009 financial crisis. Current projections suggest the Fed will approve one more 0.25% basis-point hike in April before pausing more increases for the remainder of the year.
March saw a 5% rise in the CPI on a seasonally adjusted basis, “the smallest 12-month increase since the period ending May 2021,” the Labor Department reported.
Core CPI, which excludes the volatile food and energy categories, also rose during the month, increasing 0.4% after rising 0.5% in February. On a 12-month basis, core inflation rose 5.6%, which was up from 5.5% the month before
The index for medical care (-0.3%) and the index for used cars and trucks (-0.9%) decreased over the month, while motor vehicle insurance (+1.2%), airline fares (+4%), and new vehicles (+0.4%) saw increases.
“As the economy slows, consumer prices will decelerate further and should bring inflation closer to the Fed’s long-run target of 2%,” said Jeffrey Roach, chief U.S. economist at LPL Financial, per CNBC.
Once the dust from the report settles, Roach believes markets will begin to see a positive reaction. He suggests the report will instill more confidence in investors “that the next Fed meeting may be the last meeting when the Committee raises the fed funds target rate.”
- CPI monthly change +0.1% vs. +0.4% | Beat expectations
- CPI 12-month change +5.0% vs. +6.0%
- Core CPI monthly change +4% vs. +0.5% | In line with expectations
- Core CPI 12-month change 5.5% vs. +5.6%