Inflation slows, rising 0.1% in March and 5% from this time last year

Fed rate hikes seem to be taking the desired effect on the economy

The consumer price index showed that inflation rose 0.1% in March and is up 5% year-over-year. The slowing of inflation is attributed to the Federal Reserve’s interest rate hikes, and the annual increase is the lowest since June of 2021.

While still higher than the 2% the Fed would like see, the slowing of inflation growth was welcomed by economists and financial analysts. Excluding the volatile food and energy segments, core CPI rose 0.4% for the month and 5.6% year-over-year, both within economist expectations.

Energy costs dropped 3.5% and the food index was unchanged, helping to keep overall inflation low. Shelter costs increased 0.6%, the smallest gain since November, but is still up 8.2% on an annual basis. Excluding shelter, the consumer price index rose 3.4% from a year ago. Used vehicle prices, which had been a major contributor to the initial inflation surge in 2021, declined 0.9% in March, down 11.2% for the year. Medical care services costs fell 0.5% for the month.

Markets are pricing a 65% chance of a final 0.25 percentage point interest rate increase at the Fed’s May meeting. The Fed has raised the benchmark interest rate 4.75 percentage points in a little over a year, a pace not seen since the early 1980s.

Labor shortages have pushed up wages and prices, but March saw the smallest gain in nonfarm payrolls since December 2020 with average hourly earnings rising 4.2% annually, the lowest level since June 2021.

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