According to the latest report released by the Bureau of Labor Statistics, US inflation continued its downward trajectory in March. Prices for goods and services as computed by the Consumer Price Index (CPI), rose by 5.0% between March 2022 and March 2023, marking their slowest increase since March 2021.
Inflation was initially driven up by the rising costs of goods since the COVID-19 pandemic. Between the increase in demand as Americans focused on material items, the economic repercussions of the war in Ukraine on food and fuel values, and the ongoing disturbances in the supply chain, prices on items such as vehicles, energy, and groceries, skyrocketed. However, as health concerns during the pandemic recede, service costs, such as airfare, hotel rooms, manicures, insurance, and childcare, have become some of the primary drivers.
Shelter costs, which include both rent and the cost of homeownership and account for more than one-third of the index, are still rising at a high rate. However rent posted the smallest monthly increases in about a year.
What Will the Fed Do Next?
The latest data seem to indicate that the Federal Reserve Bank is winning its battle against inflation after peaking at 9.0% last summer. However, prices are decreasing more slowly than expected and remain significantly higher than the Fed’s targeted rate of 2%. In addition, the so-called Core CPI, which excludes the more volatile prices of food and energy, increased by 0.4% from February, following a 0.5% gain the previous month, and picked up by 5.6% from a year earlier. It should also be noted that a good chunk of the year-over-year deceleration is due to the sharp decline in gas prices compared to last year, which is unlikely to be sustained.
The Federal Reserve Bank will announce its next policy decision regarding interest rates on May 3. Between the banking turmoil of recent weeks, a softening but still strong job market, and the latest inflation data, the question of another rate increase remains in the balance.
“Looking ahead, there are good reasons to think that policy may have to tighten more to bring inflation down,” said Mary C. Daly, president of the Federal Reserve Bank of San Francisco. “But there are also good reasons to think that the economy may continue to slow, even without additional policy adjustments.”
We’ll keep you updated on further developments. In the meantime, if you’d like more information about buying/selling or refinancing in today’s market, give us a call or drop us an email.
