US consumer prices saw a 3.5% increase for the 12 months ended in March, according to the latest Consumer Price Index data released by the Bureau of Labor Statistics. This is up considerably from February's 3.2% rate and marks the highest annual gain in the past six months. The path to lower inflation remains extremely bumpy and continues to be a drag on Americans' hard-earned finances, and any loosening of monetary policy might not happen soon.
President Joe Biden acknowledged Wednesday there is "more to do" to bring down inflation. Today's report shows inflation has fallen more than 60% from its peak, but we have more to do to lower costs for hardworking families. Prices are still too high for housing and groceries, even as prices for key household items like milk and eggs are lower than a year ago.
The Federal Reserve has been wanting to see meaningful progress on inflation before it starts cutting rates. The pace of price hikes slowed markedly in 2023, but that progress not only hit a roadblock to start this year but moved into reverse. Since the headline index can be heavily influenced by highly volatile categories such as food and energy, central bankers often look closely to the "core" index that strips out those categories. However, core CPI did not slow as expected.
source: CNN News
Excluding gas and food prices, categories that tend to be more volatile, core inflation rose 0.4% from the month before, bringing the annual rate to 3.8%, the same as February's reading. Economists had anticipated a 0.3% monthly gain and for the annual rate to inch lower to 3.7%, according to FactSet. Tyler Schipper, assistant professor in economics and data analytics at the University of St. Thomas in Minnesota, told CNN that the number to fixate on in terms of underlying inflation trends, and they are very persistent and very stubborn.
On a three-month annualized basis, core inflation is running at 4.5%. Car insurance spikes, other services climb
The housing component of inflation has proved frustrating for economists and other observers because even while the government's evaluation of shelter costs — which have a time lag — remains high, private sources of more recent data have shown rent cooling over the past year. On an annual basis, the shelter index in the March CPI didn't budge from the 5.7% rate seen a month before.
The services excluding shelter index continued to outpace overall inflation, rising 0.5% for the month and 5.3% for the year, according to the report. Medical care services, which saw prices fall slightly in February, bounced higher by 0.6% last month. Car insurance shot up by 2.6%, bringing the annual price hike to a distasteful 22.2%.
Economists have long expected that lower market-rate rents would help bring shelter inflation and overall inflation lower (the CPI's measurement of shelter prices comes with a delay in how BLS captures the data and the natural lag effect of the signing of annual leases). But there still is hope on the services side, Schipper said.
Food prices hold steady, but Americans have a beef with the cost of a burger. Wages are one of the primary inputs into services, and those have been relatively stable and coming down nicely in the labor market. Hopefully, that starts to put some calming pressure on services over the longer term.
It’s going to be a “slow, slow process” for inflation to get back to a place where consumers aren’t having to think about it in their daily lives, House said.
“Prices are not going to revert to where they were, so the best we can look for is a moderation in the rate at which prices are going up,” she said. “You see some stabilization in some key areas like the grocery store; but overall, you’re still going to see consumers bothered by the current price environment for some time.”