Annual inflation continued to cool last month, falling to its lowest level in nearly two years. The Labor Department said Wednesday that its consumer price index rose by 5% year over year in March, down from 6% in February and the ninth straight monthly decline. Still, inflation remains well above the Federal Reserve’s target rate and so-called “core” inflation rose, making an additional interest rate hike likely when the central bank’s policymakers meet in May.
The consumer price index rose 0.1% from the prior month, down from a 0.4% increase in February. The core CPI, which excludes volatile food and energy prices, rose 0.4%, down slightly from February. Over the last 12 months, the core index rose 5.6%, up from 5.5% as of February — the first rise in that measure since September.
“Today’s report shows continued progress in our fight against inflation with the 12-month inflation rate at the lowest level since May 2021,” President Biden said in a statement. “This progress follows last week’s news that our job market remains historically strong. Inflation has now fallen by 45% from its summer peak.”
Grocery prices fell on a monthly basis for the first time since September 2020. Egg prices, which jumped to record levels recently because of an outbreak of avian flu, fell nearly 11% in March, the biggest monthly drop since 1987. And energy prices fell by 3.5% over the month.
Shelter prices, which tend to lag other categories, continue to climb. They were the largest factor behind the increase in the core index, climbing 0.6% in March after rising 0.8% in February. “The shelter index increased 8.2 percent over the last year, accounting for over 60 percent of the total increase in all items less food and energy,” the Labor Department said. Recent private-sector data suggest that shelter prices have been moderating, though. That should start showing up in the government reports eventually.
Fed economists project a mild recession: The newly released minutes of the March meeting of the Federal Open Market Committee showed that the Fed now expects the economy to dip into a “mild recession” later this year due to turmoil in the banking sector. Even so, investors now project a 70% chance of a 25-basis-point hike in May, down just slightly from yesterday, according to the CME Group’s FedWatch Tool.
The bottom line: “Prices are still up,” Liz Ann Sonders, chief investment strategist at Charles Schwab, told The Washington Post. “They might be rising at a descending rate, but the average consumer still sees that things are getting more expensive than they were.” And Mickey Levy, chief Americas economist for Berenberg Capital Markets, told the Post: “Inflation may be gradually coming down, but people aren’t feeling it yet.”