In March, inflation decelerated for the ninth consecutive month as both gasoline and grocery prices dropped. However, an alternative inflation measure that provides a better depiction of long-term trends accelerated due to a surge in rent prices.
According to the consumer price index released by the Labor Department, consumer prices increased by 5% compared to the previous year, which is lower than the 6% increase observed in February and the peak of 9.1% in June last year, which was the highest in 40 years. This marks the smallest annual gain since May 2021.
On a monthly basis, prices only rose by 0.1% following a 0.4% increase in February, indicating a resumption of the previous downward trend.
Inflation Demystified: Understanding the Distinction between Core CPI and Overall CPI!
However, prices of core goods, which do not include volatile food and energy items and reflect longer-term trends, rose by 0.4% in March, following a 0.5% increase in February. This resulted in an annual increase from 5.5% to 5.6%.
The report highlights that inflation in goods is easing to some extent as the supply chain disruptions caused by the pandemic are gradually resolving and commodity prices are decreasing.
However, this slowdown is occurring slowly and inconsistently. Barclays predicts that annual inflation will decrease to 3.3% by the end of the year, which is higher than their previous forecast of 2.9%.
Prices for services are experiencing more pronounced increases. Brian Fried, a resident of Melville, New York, has noticed a significant rise in his grocery bill at Costco over the past couple of years, going from approximately $150 to $225. Similarly, a restaurant bill for Fried, his wife, and daughter now totals $120, up from $75 previously.
However, Fried mentions that with the pace of price gains slowing down in recent months, his family has resumed dining out a couple of times a week, after cutting back to just once a week due to the sharp increase in costs. “We’re getting accustomed to the price increases,” says Fried, who is 49 years old and works as an inventor and entrepreneur.
Interest Rate Speculations: What to Expect from the Fed’s Next Move
As core inflation continues to rise, the report is likely to reinforce the Federal Reserve’s tentative plan to raise its key interest rate by another quarter percentage point in May. This would mark a total of 5 rate hikes in the past year, as the Fed takes aggressive measures to combat inflation, according to economist Paul Ashworth of Capital Economics.
However, due to the recent collapse of Silicon Valley Bank and the resulting impact on lending by banks, Federal Reserve officials have indicated that they may pause after the May rate hike and assess the effects of the crisis on the economy.
Driving Into the Unknown: Predicting the Future of Gas Prices
In March, gas prices experienced a decrease of 4.6%, and they are down by 17.4% compared to the same period last year. According to AAA, the national average for regular unleaded gasoline was $3.60 per gallon as of Tuesday, which is a decrease from the average of approximately $5 per gallon in June.
However, Barclays predicts that pump prices may trend higher again in the upcoming months due to recent oil production cuts by OPEC, which could prevent overall prices from declining more rapidly.
Grocery Price Forecast: What’s in Store for 2023?
Unexpectedly, grocery prices declined by 0.3% in March. Although they are still up by 8.4% annually, this marks a decrease from the 10.2% increase in February. The cost of commodities like wheat and corn has fallen in recent months due to easing global demand.
In March, the price of eggs dropped by 10.9%, marking the second consecutive monthly decline after a series of significant increases related to bird flu. However, costs are still up by 36% over the past year. Ham prices also tumbled by 4.8%, while fish and seafood prices fell by 1.2%, and chicken prices slipped by 0.6%.
Despite these declines, some costs continued to climb. Breakfast cereal prices rose by 2.4%, offsetting the drop from the previous month. Bread and ground beef prices both increased by 0.4%. Additionally, restaurant prices saw an increase of 0.6%.
For Jerry Pierce of Westminster, Colorado, who is semi-retired, the moderate slowing of inflation does not bring much solace. “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 significantly higher, Pierce and his wife have cut back on eating out, now only dining out a couple of times a month compared to several times a week before the price increases.
Although gas prices have fallen from their peak last summer, they are still double what they were two years ago, affecting Pierce’s ability to travel to small mountain towns for long weekends.
“That’s out now,” he says, “Too expensive.” Pierce also notes that his retirement account has substantially decreased, leaving him paying more for everyday expenses while having less to save.
Inflation Impact: Stock Market Update and What it Means for Investors
As of Wednesday morning, U.S. stocks are showing a slight upward trend following the release of the March report. The Dow Jones Industrial Average has risen by 0.4%, while the S&P 500 has nudged 0.3% higher in morning trading.
Understanding the Impact of Rent Inflation
Rent, although still the primary contributor to inflation, experienced a notable slowdown in its rate of increase. In February, rent rose by 0.8%, but the increase tapered to 0.5% in the current period. Nevertheless, over the past year, rent has surged by 8.8%. Economists anticipate that rents will decrease later in the year, based on new lease agreements.
The cost of used cars, which had been consistently declining for nine consecutive months, dropped by 0.9% following a significant spike during the COVID-19 pandemic. However, wholesale prices of used cars have been on the rise in recent months, leading analysts to predict an eventual uptick in retail costs. On the other hand, new car prices saw a modest increase of 0.4%.
While medical care services experienced a decrease of 0.5%, prices for other services saw an upward trend. Air fares rose by 4%, hotels by 2.7%, car insurance by 1.2%, and vehicle repair by 0.3%.
Despite an overall decline in goods prices, furniture and bedding prices increased by 0.4%, and apparel prices rose by 0.3%.
The Personal Consumption Expenditure price index, which is the Federal Reserve’s preferred measure of inflation, is scheduled to be released on April 28.
The next Consumer Price Index (CPI) report is set to be released on May 10. The Federal Reserve’s objective is to achieve an inflation rate of 2%, as it aligns with their mandate for maximum employment and price stability.
Despite indications of inflation slowing down due to the pandemic, pet owners in the United States are still feeling the pinch. According to the consumer price index data released on Wednesday, pet food prices have surged by 14.4% in March compared to the same period last year.
This increase is six percentage points higher than the rise in grocery prices and nearly three times the rate of price growth for other consumer goods.
According to Freddie Mac’s report on Thursday, the average rate for 30-year fixed-rate mortgages as of April 6 was 6.28%, slightly lower than the previous week’s rate of 6.32%. However, mortgage rates are still higher compared to the same time last year, when the 30-year fixed-rate mortgage averaged 4.72%.
The next Federal Reserve meeting is scheduled for May 2-3.
The current annual inflation rate is 6%.
Economists surveyed by Bloomberg are anticipating a 0.2% increase in prices on a monthly basis in the upcoming Consumer Price Index (CPI) report. On an annual basis, they estimate a 5.2% rise in prices.
Core CPI, which excludes the volatile components of energy and food, is expected to increase to 5.6% on an annual basis for March, up from 5.5% as predicted by economists.