March inflation report hints at weaker price gains

Illustration: Sarah Grillo/Axios

After worrying inflation data so far this year, the March figures give way to cautious optimism.

Yes, but: Prize winnings are always way too fastespecially in sectors of the economy where inflation can be difficult to eradicate.

  • Still, there are signals of disinflationary relief, and more are to come in the coming months, though they’re not on track to happen as quickly as the Federal Reserve (or consumers) are letting them. would like.

By the numbers: Core inflation, which excludes food and energy prices, rose 0.4% last month, barely slowing from February’s strong pace. In the year to March, core inflation was 5.6%, higher than the headline inflation index (5%), for the first time since 2020.

  • Yet underlying inflation over the last three months, on an annualized basis, is 5.1%, which is higher than it was for the same measure in the last quarter of 2022 (4.3 %).

The plot: Some key underlying details in the report indicated downward inflationary momentum.

  • For rent, part of the massif shelter category that helped driving up inflation for months, perhaps finally reflects the moderation that has emerged in private sector data. The index rose 0.5% in March – a slowdown from February’s 0.8% rise – with further decline expected.

There was also moderation in the “supercore” measure closely watched by the Fed (i.e. non-housing basic services), given the close ties to labor market dynamics.

  • Prices on this measure rose 0.2% last month, from 0.4% in February, according to Abigail Watt, research economist at abrdn.

What they say : “It’s still the case that inflation in this category is too high. The Fed will be looking for the positive momentum to continue,” Watt said.

To note : Fed officials tend to focus on measures of inflation that look beyond volatile food and energy costs. But for consumers hit hard by soaring costs for these essentials, there was good news on that front.

  • This includes the outright fall in grocery prices of 0.3% – the first drop since September 2020 that came, in part, from drop in egg prices.
  • Overall, food prices remained stable compared to February, although they still increased by 8.5% in the 12 months ending in March.

The bottom line: For now, the US inflation story remains the same: too high and too sticky for the appetite of Fed policymakers, with no guarantee of a direct downward path.

  • But signs of price declines to come are helping to readjust financial market expectations for Fed rate hikes, with higher odds that the central bank will pause the hike after next month’s policy meeting.

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