Inflation Eased to Lowest Level in Nearly 2 Years in March

April 12, 2023

Inflation in the U.S. eased in March to the lowest level in nearly two years, but underlying price pressures mean the Federal Reserve may consider another rate increase in May.

The consumer price index (CPI), a key inflation gauge that tracks what consumers pay for a wide swath of goods and services, increased 5% last month from the year prior, according to the Labor Department. That is a marked cooldown from February’s year-over-year increase and the lowest reading since May 2021.

The Labor Department noted that Americans saw price pressures for gasoline and groceries ease in March, while prices continued to climb for things like housing and airline travel. On a month-to-month basis, CPI was up just 0.1%. Both the annual and monthly rates came in below expectations.

Falling food and energy prices helped keep the headline number low. Energy prices declined 3.5% for the month, and the food index held steady. Prices for food at home fell 0.3%, which is the first decline since September 2020. These prices are still up 8.4% from a year prior. Eggs prices, which have been surging recently, fell nearly 11% for the month, but are still up 36% from a year earlier. 

The “core” CPI, which excludes volatile components like food and energy, increased 5.6% on an annual basis, accelerating slightly from the month before. Economists view core inflation as a better indicator of future inflation, and its persistence means another rate hike is still on the table.

One of the “stickier” components of inflation is shelter. Shelter costs were up 0.6% last month, the smallest monthly gain since November, but still up 8.2% from a year prior. Shelter costs account for roughly one-third of the CPI and are closely watched by the Fed. Excluding shelter costs, the CPI was up just 3.4% on an annual basis, according to economists at LPL.

Despite the overall downward trend of inflation, it remains much higher than the Fed’s 2% target. The markets are predicting a 65% chance that the Fed will enact another 25 basis point increase at its May meeting, according to data from the CME Group.


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