Inflation slows to 5% in March, a nearly 2-year low, but core consumer price gains accelerate

Inflation slowed for a ninth straight month in March amid drops in both gasoline and grocery price.

But an underlying inflation measure that better reflects long-term trends accelerated on another surge in rent.

Consumer prices increased 5% from a year earlier, down from 6% in February and a 40-year high of 9.1% last June, according to the Labor Department’s consumer price index.

That’s the smallest annual gain since May 2021.

On a monthly basis, prices edged up just 0.1% following a 0.4% increase in February, resuming a previous downshift.

Inflation comes after man’s best friend as pet food costs soar

Pandemic-fueled inflation might be gradually cooling, but you’d be hard-pressed to convince the millions of U.S. pet owners.

Americans paid 14.4% more for pet food in March than they did a year ago, according to the consumer price index released Wednesday. That’s 6 percentage points higher than what we paid for our groceries and nearly triple the rate for everything else we bought.

– Jim Sergent

What is the difference between core CPI and overall CPI?

But core prices, which exclude volatile food and energy items and capture longer-lasting trends, increased 0.4% from February following a 0.5% bump in the previous month. That pushed up the annual increase from 5.5% to 5.6%.

The report underscores that goods inflation is letting up somewhat as pandemic-induced supply chain snarls resolve and commodity prices fall but the pullback is painfully slow and playing out in fits and starts. Barclays expects annual inflation to drop to 3.3% by the end of the year, above its prior 2.9% forecast.

Prices for services are rising more sharply.

Brian Fried, of Melville, New York, says that over the past couple of years, his grocery bill at Costco has shot up from about $150 to $225 and a restaurant tab for Fried, his wife and daughter totals $120, up from $75.

But with price gains slowing in recent months, Fried says his family has resumed dining out a couple of times a week after scaling back to just once weekly as costs spiked.

“We’re getting used to the price increases,” says Fried, 49, an inventor and entrepreneur.

Will Fed continue to raise interest rates?

With core inflation rising, the report likely bolsters the Fed’s tentative plan to raise its key interest rate by another quarter percentage point in May, capping 5 points of rate hikes the past year in an aggressive bid to wrestle down inflation. But with Silicon Valley Bank’s collapse leading banks to restrict lending, Fed officials have said they’ll probably pause at that point assess the effects of the crisis on the economy.

What is the future of gas prices?

In March, gas prices declined 4.6% and are down 17.4% from a year ago. Nationally, regular unleaded gasoline averaged $3.60 a gallon Tuesday, down from about $5 in June, according to AAA. But Barclays expects pump prices to trend higher again in coming months because of OPEC’s recent oil production cuts, keeping overall prices from falling more rapidly.

Will grocery prices go down in 2023?

Grocery prices unexpectedly declined 0.3%. They’re still up 8.4% annually but that’s down from 10.2% in February. The cost of commodities such as wheat and corn has fallen in recent months because of easing global demand.

In March, the price of eggs dropped 10.9.%, the second straight monthly decline, after a string of sharp bird flu-related increases but costs are still up 36% over the past year. Ham prices tumbled 4.8%; fish and seafood prices fell 1.2%, and chicken slipped 0.6%.

But some costs continued to climb. Breakfast cereal rose 2.4%, more than offsetting a drop the previous month. Bread and ground beef prices both rose 0.4%.

Jerry Pierce, of Westminster, Colorado, who is semi-retired, says he finds no solace in the moderate slowing of inflation.

“It’s still climbing but at a slower rate,” he says, “Being on a fixed income, it’s incredibly difficult.”

With grocery and restaurant costs still sharply higher, he and his wife eat out a couple of times a month, down from several times a week before the price run-up. And gas prices have fallen from last summer’s peak but are still double the price.

The couple used to travel often to small quaint towns in the mountains for long weekends but no longer.

“That’s out now,” he says. “Too expensive.”

Noting his retirement account is down substantially, he says, “I pay more and have less.”

Are mortgage rates falling?

Freddie Mac reported Thursday that 30-year fixed-rate mortgages averaged 6.28% as of April 6, down from 6.32% the week before. However, rates remain higher than a year ago, when the 30-year fixed-rate mortgage averaged 4.72%, said Freddie Mac.

When is the next Fed meeting?

The next meeting is scheduled for May 2-3.

Current inflation rate

The current rate of inflation is 6% on annual basis.

CPI report expectations

Economists surveyed by Bloomberg predict prices rose by 0.2% on a monthly basis. On an annual basis, they estimate a 5.2% rise in prices.

Core CPI

Core CPI is a measure of the change in consumer prices excluding energy and food which are generally the most volatile components of CPI. Economists expect core CPI for March to rise to 5.6% on an annual basis from 5.5%.