US Annual Inflation Rate Slows to Lowest Level Since May 2021

Published: 4/12/2023, 9:32:06 AM EDT

The U.S. annual inflation rate eased to 5.0 percent in March, down from 6.0 percent in February, according to the Bureau of Labor Statistics (BLS). This came in below economists' expectations of 5.2 percent.

On a month-over-month basis, the Consumer Price Index (CPI) rose 0.1 percent, down from 0.4 percent.

The core inflation rate, which excludes the volatile energy and food sectors, climbed to 5.6 percent year over year, up from 5.5 percent. The core CPI jumped 0.4 percent from February to March, down from 0.5 percent.

Services inflation, which has been stubbornly high, also eased to 7.3 percent, down from 7.6 percent, and is the lowest number in four months.

The key categories in the CPI report eased from a year ago.

Food prices advanced 8.5 percent year over year. The energy index fell 6.4 percent. Shelter swelled 8.2 percent in the 12 months ended in March.

Many food items remain higher than last year, however, such as eggs (36 percent), margarine (33.4 percent), bread (15.2 percent), coffee (10.3 percent), potatoes (9.7 percent), and chicken (6.5 percent).

On the energy front, motor fuel plunged 4.7 percent month over month and 14.2 percent year over year. Gasoline prices plummeted 17.3 percent from a year ago, and 4.6 percent from February to March. Electricity costs were up more than 10 percent from a year ago, but they slipped 0.7 percent on a monthly basis. Utility piped gas services also rose 5.5 percent year over year, but dropped 7.1 percent month over month.

Rents, which are a lagging inflation indicator, surged 8.3 percent year over year and 0.6 percent month over month.

New vehicles rose 6.1 percent, while used cars and trucks tumbled 11.2 percent. Apparel increased by 3.3 percent. Medical care commodities and services increased by 3.6 percent and 1 percent, respectively. Transportation services surged at an annualized rate of 13.9 percent.

Investors cheered the news, because it makes the situation less complicated for the Federal Reserve, says Giuseppe Sette, the president of market analytics firm Toggle AI.

"Inflation's downward trend makes life easier for the Fed," he said. "However, speculation that the central bank could cut the rate toward the end of the year should be tempered by the Fed's own communication to the contrary. Traders would do well to remember that rates historically are always higher than inflation except during a recession."

The financial markets popped following the CPI data before the opening bell, as the leading benchmark indexes were up at least 0.6 percent in pre-market trading.

The U.S. Treasury market was red across the board, with the benchmark 10-year yield down about 7 basis points, to around 3.36 percent.

The U.S. Dollar Index (DXY), which gauges the greenback against a basket of currencies, cratered roughly 0.6 percent to 101.60.

The State of Inflation Expectations

Looking ahead, the Federal Reserve Bank of Cleveland's CPI Nowcasting expects the annual inflation rate to come in at 5.4 percent and the core CPI to be 5.6 percent in April. The month-over-month CPI is projected to rise 0.6 percent, and the monthly core CPI is anticipated to climb 0.5 percent.

Consumers' expectations for one-year inflation rose for the first time since October 2022, with households anticipating that prices will increase by 4.7 percent, according to the Federal Reserve Bank of New York's Survey of Consumer Expectations (SCE).

The International Monetary Fund (IMF) released its World Economic Outlook on Tuesday and warned that the baseline estimate for global headline inflation is expected to ease to 7.0 percent this year. Economists agree that "inflation is much stickier than anticipated even a few months ago," urging central banks to continue their inflation-focused monetary tightening efforts.

Alan Detmeister, senior economist and executive director at UBS, thinks it is still going to take time for inflation to return to the U.S. central bank's 2 percent target objective.

"Headline inflation still continues to trend down, but progress on core inflation seems to be stalled," Detmeister said in a Morningstar report. "It’s going to take time, at least a year away from that. But once you start getting more toward the summer, we expect to see monthlies start to ease on the core side.”

The IMF thinks inflation will only return to central banks' targets sometime in 2025.

Despite the bearish tones surrounding inflation, RBC Economics believes that inflation should soften due to a slowdown in food, energy, and rents.

"Core’ (ex-food and energy) inflation has been ‘stickier’ than expected, but is also expected to tick lower," economists Nathan Janzen and Carrie Freestone wrote in a note. "Home rents have been driving a rising share of core price growth, but should begin to slow going forward as softer growth in current market rents feeds through gradually to the CPI measure as leases are renewed."

The Producer Price Index (PPI) for March will be released on Thursday. Economists forecast a zero percent month-over-month print and a 3.0 percent year-over-year reading.

From The Epoch Times