Inflation in the United States slowed more than expected last month, falling to an annual rate of 5 percent, the lowest rate of price rise since May 2021.
Wednesday’s Labor Department report on the Consumer Price Index showed that March marked the ninth straight month of annualized inflation declines, from a June peak of 9.1 percent.
While the downward trend has offered some relief to households and businesses hit hard by rising prices, inflation remains well above the Federal Reserve’s target of 2 percent.
The Fed is still seen as likely to raise its benchmark interest rate at least once more when it meets next month, after the threat of a broader financial crisis appeared to have receded after the collapse of two banks last month.
However, the Dow Jones Industrial Average rose 79.42 points, or 0.24 percent, at the opening bell, as Wall Street assessed the prospects for the Fed stopping interest rate hikes sooner rather than later.
US inflation slowed more than expected last month, falling to an annualized rate of 5%, the lowest inflation rate since May 2021.
“Headline inflation slowed in March, but it’s not yet time to celebrate,” John Lear, chief economist at decision intelligence firm Morning Consult, told DailyMail.com.
“Core inflation was driven down mainly by lower energy prices, which tend to fluctuate from month to month,” he added.
“Core inflation remains more stable and sustained than the Fed would like, and in addition to the strength of the March jobs report, there is a growing case for the Fed to raise interest rates again at its next meeting,” Lear said.
Excluding volatile food and energy prices, so-called core inflation rose 0.4 percent in March from the previous month, and 5.6 percent from the previous month, up slightly from February’s increase of 5.5 percent.
Price increases in the broad service sector of the economy — from rents and restaurant meals to barbers and car insurance — continue to keep core inflation high, as a tight labor market pushes wages higher.
However, average prices for groceries, energy, used vehicles, and Medicare services actually fell slightly from February to March, helping to moderate annual inflation.
On a monthly basis, the all-items index rose 0.1 percent in March compared to February, less than the 0.2 percent increase economists had expected.
Although grocery prices are still up 8.8 percent from a year ago, this is down from the double-digit annual increases in recent months.
Overall grocery prices fell 0.2 percent in March compared to February, thanks in large part to lower egg prices.
Egg prices fell sharply in March, down 10.9 percent from the previous month, as supplies began to recover from a shortage caused by an outbreak of bird flu. However, egg prices are more than a third higher than they were a year ago.
Gasoline prices rose 1 percent from February to March, but remain 18 percent lower than they were 12 months ago, when Russia’s invasion of Ukraine sent global oil prices soaring.
March marked the ninth consecutive month of annual inflation decline, from a June peak of 9.1%.
President Joe Biden touted the latest inflation data in a statement, saying, “Today’s report shows continued progress in our fight against inflation.”
“While inflation remains very high, this progression means more breathing space for hard-working Americans – with wages now higher than they were 9 months ago, after accounting for inflation,” he added.
However, Biden’s critics have not relented, saying inflation remains too high and blaming his Democratic Party’s policies.
“Inflation is rising, wages are falling, and Americans are struggling to stay afloat in a failed Biden economy,” RNC Chair Ronna McDaniel said in a statement.
“The Democrats have no answers, no solutions – their policies only exacerbate the economic burden on families, and yet Biden wants taxpayers to foot the $6.9 trillion tax and spending bill that will push inflation to even greater levels,” she added, referring to the budget unveiling. Biden proposed federalism last month.
Wall Street has been watching the inflation data closely, as it marked the last major data point before the Federal Reserve meets again on May 2-3.
The biggest immediate question for Wall Street was whether the Federal Reserve would continue to raise interest rates in its attempt to control soaring inflation.
After the new inflation data, the probability that the Fed will maintain current rates at its next meeting rose slightly to 33 percent, with a 67 percent chance that rates will rise by another quarter point, according to the CME Group FedWatch tool.
Higher rates can dampen inflation, but in a slowing economy they increase recession risks and push down stock and other investment prices.
The central bank has already raised interest rates at a brisk pace over the past year, enough to slow some areas of the economy and for cracks to appear in the banking system.
Last month, California’s Silicon Valley and Signature Bank of New York collapsed in the second and third largest bank failures in US history, preceded only by the failure of Washington Mutual in 2008.
After a tense few weeks in which there were fears of the crisis spreading to other regional banks, that threat appeared to be receding after a group of major US banks stepped in to inject $30 billion in deposits into the troubled First Republic Bank.
Fed Chairman Jerome Powell said he didn’t want to risk stopping too soon on policy tightening, only to have to start raising interest rates again if inflation picked up again.
The Fed has raised interest rates rapidly over the past year to fight inflation, but higher rates raise the risk of a recession and hurt stock prices and other investments.
After the new inflation data, the probability that the Fed will maintain current rates at its next meeting rose slightly to 33%, with a 67% chance of a quarter-point increase.
The Fed now has a strong case to raise interest rates again, after last week’s March jobs report showed that the unemployment rate fell to 3.5 percent, near its lowest level in six decades.
The US economy added a quick 236,000 jobs in March despite a recent spike in layoffs, indicating that new work is still relatively easy to find.
Fed Chairman Jerome Powell said he didn’t want to risk being stopped too soon by tightening policy, only to have to start raising interest rates again if inflation picked up again.
After the March inflation report, traders confirmed bets that the Fed will hold back interest rate hikes this summer and deliver some rate cuts by the end of the year.
They now see year-end short-term rates about half a percentage point lower than they are now, based on futures prices.
“I think with inflation dropping significantly from six percent to five percent, if that continues, it could give the Fed leeway to cut interest rates later this year if we see a sharp slowdown in the economy,” Joe Manibo of Convera told Reuters.
