In March, US consumer prices experienced only a slight increase due to a decrease in gasoline prices. However, persistent high rents continue to exert pressure on underlying inflation, which will likely prompt the Federal Reserve to raise interest rates again next month. The Labor Department's mixed report on Wednesday provided some hope in the fight against inflation, with indications of services inflation moderating and rent increases slowing down.
Food prices remained static, marking the weakest performance since November 2020, with some relief provided to households at the grocery store. Wells Fargo senior economist Sarah House noted, "The bottom line is that inflation still remains too hot for the Fed's liking." Nevertheless, House also pointed out signs that inflation could continue to decelerate in the coming months.
The Consumer Price Index (CPI) saw a 0.1% rise last month following a 0.4% increase in February. The 4.6% drop in gasoline prices was balanced out by higher rental costs. After Saudi Arabia and other OPEC+ oil producers announced further output reductions earlier this month, gasoline prices are anticipated to bounce back.
Food consumed at home witnessed a 0.3% price decrease, the first drop since September 2020. Prices for eggs, meat, fruits, and vegetables all fell, while cereals, bakery products, and nonalcoholic beverages saw price increases. The cost of dining out also rose. As of March, the CPI experienced a 5.0% increase over the past 12 months, the smallest year-on-year gain since May 2021. The CPI rose 6.0% on a year-on-year basis in February.
Last year, the annual CPI reached its peak at 9.1% in June, the largest increase since November 1981. The rate has been decreasing as the initial surge in energy prices following Russia's invasion of Ukraine is removed from the calculation.
Despite overall annual inflation rates slowing down, President Joe Biden acknowledged that inflation remains more than double the Fed's 2% target. Economists predicted that the CPI would see a 0.2% increase last month and a 5.2% year-on-year rise.
Following last month's collapse of two regional banks and the easing of financial market stress, economists anticipate that the US central bank will raise rates once more in May before pausing its rapid monetary tightening campaign in June. Financial markets predict a 25 basis point rate increase at the Fed's May 2-3 policy meeting, with some even betting on rate cuts later this year as the economy potentially enters a recession.
