(CTN News) – Despite Federal Reserve interest rate increases, March inflation cooled, according to the Labor Department.
The consumer price index, a widely followed measure of the cost of goods and services in the U.S. economy, rose 0.1% for the month against a Dow Jones estimate for 0.2%, and 5% from a year ago.
The core CPI increased by 0.4% on an annual basis, excluding food and energy.
Despite inflation still being well above where the Fed feels comfortable, the data showed that it is showing signs of deceleration.
A healthy and sustainable level of growth is considered to be around 2% inflation by policymakers. CPI’s headline annual increase was the smallest since June 2021.
Inflation was kept in check by a 3.5% decrease in energy costs and an unchanged food index. In the past year, food at home has declined by 0.3%, the first drop since September 2020. After surging for months, egg prices dropped 10.9% this month, bringing the 12-month increase to 36%.
Shelter costs rose 0.6%, the smallest gain since November, but prices still rose 8.2% annually. A third of the weighting in the CPI is allocated to shelter, which is being closely monitored by Fed officials.
The report caused stock market futures to rise sharply and Treasury yields to fall. According to the CME Group, markets still expect the Fed to raise interest rates by 0.25 percentage points at its May meeting, but this is slightly lower than Tuesday’s estimate.
LPL Financial’s Jeffrey Roach, chief U.S. economist, said the CPI increased 3.4% excluding shelter from a year ago.
Consumer prices will decelerate further as the economy slows, Roach said, bringing inflation closer to the Fed’s long-term target of 2%.
This report is likely to be well received by the markets as investors become more confident that the next Fed meeting may be the last at which the fed funds target rate is raised.
Prices for used vehicles, which contributed significantly to the initial inflation surge in 2021, declined again by 0.9% in March and are now down 11.2% on a year-over-year basis. For the month of March, medical care services costs declined by 0.5%.
Since the early 1980s, the Federal Reserve has raised its benchmark interest rate nine times for a total of 4.75 percentage points. When Covid pandemic-related factors dissipated, officials initially dismissed inflation as temporary, but were forced to play catch-up as price increases became more persistent.
A key area of focus for the central bank is the labor market. Recently, wages and prices have been affected by a shortage of workers.
The nonfarm payrolls increased by 236,000 in March, the smallest increase since December 2020, while average hourly earnings rose by 4.2%, the lowest rate since June 2021.
In order to avoid tipping the economy into recession, the Fed hopes to calibrate its policy so that the slowdown it is trying to engineer in the labor market does not tip the economy into recession.
Atlanta Fed data indicate that gross domestic product grew at an annualized rate of 2.2% in the first quarter. However, many economists anticipate a contraction later in the year.