Inflation slows to 5% – its lowest level in nearly two years – but stubbornly high prices mean interest rates will likely keep rising
- US inflation rate dipped to 5% in March, the ninth straight month of decline
- Prices cooled from February for groceries, energy, used cars, and healthcare
- But Fed is still seen as likely to raise interest rates again at meeting later in April
Inflation in the US slowed more than expected last month, dropping to a 5 percent annual rate, the lowest pace of price increases since May 2021.
The Labor Department’s Wednesday report on the consumer price index showed that March marked the ninth straight month of declining annual inflation, from June’s peak of 9.1 percent.
While the downward trend marked some relief for families and businesses hard-hit by soaring prices, inflation remains well above the Federal Reserve‘s 2 percent target level.
The Fed is still seen as likely to raise its benchmark interest rate at least one more time when it meets later this month, after the threat of wider banking crisis appeared to recede following the collapse of two banks last month.
Still, Dow futures jumped more than 200 points in pre-market trading following the report, as Wall Street assessed the odds that the Fed will pause its rate hikes sooner rather than later.
Inflation in the US slowed more than expected last month, dropping to a 5% annual rate, the lowest inflation rate since May 2021
‘Headline inflation cooled in March, but it’s not time to celebrate just yet,’ said John Leer, chief economist at decision intelligence company Morning Consult, in remarks to DailyMail.com.
‘Topline inflation was driven lower primarily by falling energy prices, which tend to be volatile from month to month,’ he added.
‘Core inflation remains stickier and more persistent than the Fed would like, and combined with the strength of the March jobs report, there’s a growing case for the Fed to raise rates yet again at its next meeting,’ said Leer.
On a monthly basis, prices rose 0.1 percent in March from February, less than the 0.2 percent increase economists had expected.
Prices for groceries, energy, used vehicles, and medical care services fell from February to March, helping push overall inflation lower.
Excluding volatile food and energy prices, so-called core inflation rose 5.6 percent in March from 12 months ago, and 0.4 percent from February.
March marked the ninth straight month of declining annual inflation, from June’s peak of 9.1%
Wall Street was watching the inflation data closely, as it marked the last major data point before the Federal Reserve meets again on April 27-28.
The biggest immediate question for Wall Street has been whether the Federal Reserve will keep hiking interest rates in its attempt to get high inflation under control.
Following the new inflation data, the probability that the Fed will maintain current rates at its next meeting rose slightly to 33 percent, with 67 percent probability that rates will rise another quarter point, according to the CME Group FedWatch tool.
The central bank has already raised rates at a furious pace over the last year, enough to slow some areas of the economy and for strains to appear in the banking system.
Higher rates can undercut inflation, but in slowing the economy they raise the risk of a recession and hurt prices for stocks and other investments.
Developing story, more to follow.
