According to the U.S. Labor Department, the Federal Reserve's consistent interest rate hikes are now showing an impact in March 2023.
The consumer price index, a widely followed measure of the costs for goods and services in the U.S. economy, rose 0.1% for the month against a Dow Jones estimate for 0.2%, and 5% from a year ago versus the estimate of 5.1%. Excluding food and energy, the core CPI increased 0.4% and 5.6% on an annual basis, both as expected.
The data showed that while inflation is still well above where the Fed feels comfortable, it is at least showing continuing signs of decelerating. Policymakers target inflation around 2% as a healthy and sustainable growth level. The headline annual increase for the CPI was the smallest since June 2021.
A 3.5% drop in energy costs and an unchanged food index helped keep headline inflation in check. Food at home fell 0.3%, the first drop since September 2020, though it is still up 8.4% from a year ago. Egg prices, which had been soaring, tumbled 10.9% for the month, putting the 12-month increase at 36%.
A 0.6% increase in shelter costs was the smallest gain since November, but still resulted in prices rising 8.2% on an annual basis. Shelter makes up about one-third of the weighting in the CPI and is being watched closely by Fed officials.
The National Association of Realtors Chief Economist Lawrence Yun commented, "Calmer inflation means lower mortgage rates, eventually. The 5% consumer price inflation in March is a steady improvement from 9% last summer, 8% in autumn, 7% during Christmas, and 6% in the early months of this year. The ideal inflation of 2% is still maybe a year away, but this directional improvement is a clear signal to the Fed to change its tightening monetary policy, especially considering that many regional banks are still on the edge of further interest rate risk blowup. One important turn in the latest data was the deceleration in the rent component. Though still up by a whopping 8.8% from a year ago, the monthly gain was much lighter at 0.45% compared to the 0.7% to 0.9% monthly gain over the past year. It was inevitable for rent growth to soften, considering the robust apartment construction. Mortgage rates slipping down to under 6% looks very likely towards the year's end."