US CPI falls back to 5.0% in March

The cost of living in the US fell back by more than expected during the previous month.

According to the U.S. Department of Labor, the country's Consumer Price Index increased at a seasonally adjusted month-on-month rate of 0.1% in March (consensus: 0.2%).

That pushed the annual rate of gain down to 5.0% (consensus: 5.1%).

At the core level meanwhile, prices were up by 0.4% over the month, as expected.

In year-on-year terms, core CPI ticked higher by one tenth of a percentage point in comparison to February to reach 5.6%.

Dragging on headline CPI, food prices were unchanged on the month while energy costs dropped by 3.5%.

Meanwhile, among the core components, used car and truck prices dropped by 0.9% on the month.

New vehicle prices were up by 0.4% and and those for apparel by 0.6%.

Shelter price increases moderated modestly alongside, rising by 0.6% on the month.

That was two tenths of a percentage point less than in the prior month.

Medical care services prices slipped by 0.5%.

Paul Ashworth, chief North America economist at Capital Economics, highlighted the first evidence that housing cost inflation was slowing, even as he noted that core prices still advanced at a near 5% annualised rate.

Furthermore, the drop in gasoline prices would partly reverse in April after OPEC+'s announced output cut, Ashworth said, and used vehicle prices were set to rebound "markedly" over coming months.

"Even with March retail sales and industrial production expected to show weakness in the reports later this week, with employment growth still solid and core inflation still elevated, the odds are rising that the Fed will push on with another final 25bp rate hike at its next policy meeting."

Kieran Clancy, senior US economist at Pantheon Macroeconomics, focused on many of the same variables, but reached somewhat different conclusions.

Core CPI excluding services and rents rose at a quarterly annualised rate of 4.8%, against 4.3% for the three months to February, Klancy conceded.

"Rents account for 41% of the core CPI, so if the March downswing is sustained—the Zillow numbers point to monthly increases of just 0.2% by the end of the year—it will be a huge factor helping to bring overall core inflation down," he said.

As well, the biggest driver of core CPI services ex-rent was labour, so slower wage gains must depress price gains in the sector, he explained, absent price shocks or wider profit margins.

As for used vehicle prices, he believed that auto dealers would absorb part of the hit from higher auction prices.

"This report will not prevent the Fed from hiking in May [...] We suspect that policymakers will not be quite so keen to keep pushing the 'inflation is all that counts' line once payroll growth has weakened materially.

"We think that's imminent."