Inflation in the US economy showed signs of cooling in March, according to the Labor Department. The consumer price index (CPI) rose 0.1% for the month, lower than the Dow Jones estimate of 0.2%, and 5% from a year ago, compared to the estimate of 5.1%. The core CPI, which excludes food and energy, increased 0.4% and 5.6% on an annual basis, in line with expectations. While inflation remains above the Federal Reserve’s target of 2%, the data suggests that it is decelerating. Used vehicle prices, which were a major contributor to the initial inflation surge in 2021, declined another 0.9% in March and are now down 11.2% year over year.
The Fed has raised its benchmark interest rate nine times over the past year or so, the fastest pace of tightening since the early 1980s. Officials initially dismissed inflation as transitory, but were forced to play catch-up as price increases proved more durable. The central bank has targeted the labor market, hoping to engineer a slowdown without tipping the economy into recession. Nonfarm payrolls increased by 236,000 in March, the smallest gain since December 2020, and average hourly earnings rose at a 4.2% annual pace, the lowest level since June 2021. GDP growth is tracking at a 2.2% annualized pace in the first quarter, according to Atlanta Fed data.
The data is likely to be welcomed by investors, who may gain more confidence that the next Fed meeting may be the last meeting when the Committee raises the fed funds target rate. As the economy slows, consumer prices are expected to decelerate further and bring inflation closer to the Fed’s long-run target of 2%. While the Fed is hoping to calibrate policy to engineer a slowdown in the labor market, many economists expect a contraction to come later in the year.
Keywords: inflation, Federal Reserve, interest rate, consumer price index, labor market, GDP growth.