Get Premium Data for Cyber Monday: Up to 55% Off InvestingProCLAIM SALE

U.S. Inflation Trend Continues to Ease Through March

Published 04/13/2023, 08:31 AM
Updated 07/09/2023, 06:31 AM

The Consumer Price Index eased more than expected in March, providing fresh evidence that pricing pressure has peaked and inflation remains on track to decelerate further in the months ahead. The core reading of CPI posted a firmer reading, but this looks like an outlier when viewed in context with a range of alternative inflation metrics.

Let’s start with the official numbers from the Labor Department. Headline CPI in year-over-year terms eased sharply to 5.0%, down from February’s 6.0% pace. The drop marks the slowest increase in nearly two years. The caveat is the slight uptick in core CPI, which the Fed prioritizes as a superior measure of the inflation trend.

CPI Inflation Chart

Core inflation rose 5.6% in March vs. the year-ago level, up from 5.5% previously. The slightly stronger increase marks the first time in six months that this measure of inflation picked up. The firmer reading in core inflation gives the Federal Reserve more scope for raising interest rates again at the next FOMC meeting on May 3. As of this writing, Fed funds futures are pricing in a near-70% probability for a ¼-point hiking at that meeting.

Despite core’s slightly stronger annual pace, several alternative measures of inflation suggest that pricing pressures continue to ease. The average for these five indexes (see list below), plus the standard headline and core CPI numbers, on a year-over-year basis posted another softer increase in March and so the downside trend looks set to continue. (The five alternative CPI metrics, published by the Atlanta and Cleveland Federal Reserve banks, are: Sticky Core CPI, Sticky Core CPI Ex-shelter, Median CPI, Flexible CPI and Flexible core CPI.)

US Consumer Inflation Indexes

For a clearer view of how all seven inflation indexes are evolving for the year-over-year trend, the next chart below tracks the bias of the average for one-year. The persistent negative bias of late implies that the inflation trend will ease further in the months ahead.

US Consumer Inflation Bias Indexes

Softer core inflation is also expected in the months ahead based on CapitalSpecator.com’s ensemble model.

Core CPI 1-Year % Changes

Another reason to expect further easing in inflation is the sharp, ongoing decline in money supply. For example, the real (inflation-adjusted) slide in the monetary base suggests that the annual rate of prices changes will continue to face strong downside pressure.

US Real Monetary Base

One pushback to the lower inflation forecast is the recent upturn in consumer expectations, based on a model developed by the Cleveland Fed. According to these numbers, the recent slide in the public’s expectations for prices has rebounded moderately. It’s premature to say if this is noise or an extended shift to the upside. But if these numbers, along with survey data for consumers’ outlook, push higher in the months ahead, the change will likely strengthen the Fed’s resolve to err on the side of hawkish policy decisions.

US Consumer Inflation Expectation Indexes

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.