Inflation was down in March, but prices are still very high

Core Inflation, Housing and the Consumer Price Index: An Analysis of a Lower-Year-Old Increase in Real Property Prices

The consumer price index for March was 5% higher than a year ago, according to a report Wednesday from the Labor Department. That’s the smallest annual increase since May 2021.

Excluding the food and energy components, core inflation grew 0.4% in the month and 5.6% for the year. In February, the core inflation index increased 5.5% over the previous year.

Shelter costs tend to lag more when compared to other categories because rents don’t change very frequently and the BLS takes rent data every six months. Private-sector data shows that apartment rents have fallen in recent months, suggesting a decline in shelter prices will be reflected in theCPI.

“It’s a good print, but it’s not the end of the game, it’s not the end of the story,” Erik Lundh, principal economist at the Conference Board, told CNN. We are going in the right direction and there is more to come.

Core Inflation Revisited: Implications for the Fed and the Small-Scale Fixed-Employment Sector

“On the surface, price pressures are lessening. But when the box is opened, [core inflation] accelerated to the highest rate since May 2021,” economist Sung Won Sohn, president of SS Economics and Loyola Marymount University professor, said in a statement. The central bank had a 2% target.

CPI is one of the major inflation gauges that’s being watched like a hawk by the Federal Reserve, which is in the throes of a yearlong campaign to battle inflation through monetary tightening and stark interest rate hikes.

“Inflation remains too high, although we’ve seen welcome signs over the past half year that inflation has moderated,” Treasury Secretary Janet Yellen said this week. “Commodity prices have eased. Supply-chain snarls are being resolved. The global financial system has generally proven to be able to handle shocks.

Because month-to-month changes can be volatile, even in spite of seasonal adjustments, year-over-year comparisons typically can help smooth out some of that jumpiness.

But times have been anything but typical for the past three years. So, for the months ahead, moving averages become all the more critical to observe, Lundh said.

While the picture is clearly shown for headlineCPI, it is less clear for core activity, which includes supercore activity.

Gary Pzegeo, the head of fixed income at CIBC Private Wealth US, said in a statement that the Fed would look at some relief in this metric as a sign of slower wage gains. The report shows the supercore slowed in March but remains a sticky component of inflation, running around +4%) on a three and six month basis.

He doesn’t think it’s enough to cause the Fed to pause, despite some encouraging news in the inflation data today. “So we’re expecting to see a [quarter-point] hike in the May meeting and even potentially another hike following that.”

The banking industry’s downfall last month has complicated the effort by the Fed to curb inflation.

The Fed’s own rate hikes are amplified because of that brake on the economy. Fed policymakers will have to weigh the uncertain effects of those tighter credit conditions in deciding how much higher interest rates need to go.

“The CPI is backwards looking and the Fed still has to consider how much of a credit crunch to factor into the economy,” said Gina Bolvin, president of Bolvin Wealth Management, in a statement.

While inflation has moderated since reaching a decades-high level last summer, the pace has been slower than anticipated as a strong labor labor market and resilient consumer spending has continued to fuel economic growth.

Service Sector Price Rises in the Pre-Kiloyear Low-Cost Predictions of the First Half of the Second World War

Prices rose 0.1% between February and March. A big part of that increase is due to the rising cost of shelter. Energy prices were lower than food prices.

The Fed has a job that is more paranoid than anyone else. That’s what they pay us for,” said Austan Goolsbee, president of the Chicago Federal Reserve Bank, this week. “In more interesting times, like the times we’re in right now, with wild shocks and financial stresses, it means we have to dig into loads of new information.”

Goolsbee told the Economic Club of Chicago Tuesday that the most worrisome price hikes today are in the services sector, which was pummeled early in the pandemic and still hasn’t adjusted to a rapid rebound in demand.

Goolsbee said that the economy is coming back from bad times. “Goods inflation has come way down,” he added. The services inflation is a result of demand returning and the inflation proving persistent since there was a time when spending was not very discretionary.

Unlike housing and manufacturing, which are especially sensitive to rising interest rates, the service industries may be less responsive to the Fed’s inflation-fighting moves.

One encouraging sign for the Fed is that wages — an important factor in service prices — have cooled in recent months. Average wages in March were 4.2% higher than a year ago, compared to a 4.6% annual increase in February.