© Reuters. FILE PHOTO: People shop at a Target store in Chicago, Illinois, U.S. November 25, 2022. REUTERS/Jim Vondruska
WASHINGTON (Reuters) – U.S. consumer prices barely rose in March as the cost of gasoline fell, but stubbornly high rents kept underlying inflationary pressures simmering, likely ensuring that the Federal Reserve will raise interest rates again next month.
The consumer price index (CPI) climbed 0.1% last month after rising 0.4% in February, the Labor Department said on Wednesday. In the 12 months to March, the CPI rose 5.0%, the smallest year-on-year gain since May 2021. The CPI rose 6.0% year-on-year in February .
The annual CPI peaked at 9.1% in June, the biggest increase since November 1981, and it is weakening as last year’s sharp increases are no longer factored into the calculation. Inflation on all measures remains more than double the Fed’s 2% target.
Gasoline prices are expected to rebound in the coming months after Saudi Arabia and other OPEC+ oil producers announced further oil production cuts earlier this month.
Economists polled by Reuters had forecast the CPI to gain 0.2% and rise 5.2% year-on-year.
The inflation data came on the heels of last Friday’s jobs report, which showed a solid pace of job growth in March and the unemployment rate falling to 3.5%.
Persistently high inflation, tight labor markets and signs of easing financial market tensions, sparked by the collapse of two regional banks last month, should allow the Fed to continue to prioritize restoration of price stability.
Financial markets are tilting for the U.S. central bank to hike rates another 25 basis points at the May 2-3 policy meeting, according to CME Group’s FedWatch tool (NASDAQ:).
Last month, the Fed raised its benchmark overnight interest rate by a quarter of a percentage point, but signaled it was poised to pause further rate hikes in a snap. to the turmoil of the financial markets. It has raised its policy rate by 475 basis points since last March, moving from a level close to zero to the current range of 4.75% to 5.00%.
Excluding the volatile food and energy components, the CPI rose 0.4% last month after rising 0.5% in February. Rigid rents continued to fuel the so-called core CPI.
However, with independent measures showing rents on a downward trajectory, housing inflation should begin to subside in the second half of the year. Rent measures in the CPI tend to lag independent gauges.
Nevertheless, the road to disinflation is likely to be strewn with pitfalls, the pressure coming from the cost of non-housing services. In the 12 months to March, core CPI rose 5.6% after rising 5.5% in February. That ended five straight months of slow year-over-year core CPI increases.