Consumer Inflation in March Eases, Higher Shelter Prices Offsetting Fall in Energy Costs

Annual inflation cooled for the eighth straight month on a year-over-year basis, total CPI was up 5.0%, versus up 6.0% in February. That is the smallest 12-month increase since May 2021. However, core-CPI was up 5.6% year-over-year, versus up 5.5% in February. Higher shelter prices (0.6%) offsetting a 3.5% fall in energy cost. Food prices were unchanged. The report showed disinflation, but that trend doesn’t necessarily take a rate hike at the May FOMC meeting off the table with core-CPI slightly higher, but there is a belief that a rate hike in May could be the last hike in this Fed’s tightening cycle. The release came as concerns over an increasingly fragile financial system following the implosion of two regional banks.

The fragility is complicating policymakers’ already bumpy path to slowing the economy. CPI is down notably from June’s peak 9.1%. Total CPI was up 0.1% month-over-month (consensus +0.3%) following a 0.4% increase in February. Core-CPI, which excludes food and energy, increased 0.4%, as expected, following a 0.5% increase in February.


US March 2023 Highlights


  • US CPI (M/M) Mar: 0.1% (est 0.2%; prev 0.4%)
  • US CPI (Y/Y) Mar: 5.0% (est 5.1%; prev 6.0%)
  • That is the smallest 12-month increase since May 2021

United States Inflation Rate
United States Inflation Rate
United States Consumer Price Index (CPI)
United States Consumer Price Index (CPI) MoM

Core inflation:

  • US CPI Ex Food and Energy (M/M) Mar: 0.4% (est 0.4%; prev 0.5%)
  • US CPI Ex Food and Energy (Y/Y) Mar: 5.6% (est 5.6%; prev 5.5%)
United States Core Inflation Rate
United States Core Inflation Rate
  • Services inflation was up 0.3% month-over-month, versus up 0.5% in February, and up 7.3% year-over-year versus up 7.6% in February.
  • Excluding shelter, services inflation was flat, compared to a 0.1% increase in February, and up 6.1% year-over-year versus up 6.9% in February.

It appears the surge in prices is over with supply chains mostly healed. Services inflation is the directional key with consumer demand having shifted back toward services from goods.

  • Food prices grew at a slower rate (8.5% vs 9.5% in February)
  • Energy cost fell (-6.4% vs +5.2%), namely gasoline (-17.4%) and fuel oil (-14.2%).
  • Prices for used cars and trucks declined once again (-11.6% vs -13.6%).
  • Inflation for shelter which accounts for over 30% of the total CPI basket, continued to march higher (8.2% vs 8.1%).
Egg prices getting fried, poached, and scrambled … m/m drop of -10.9% for CPI eggs in March was largest since December 1987 @LizAnnSonders

Lower spending on goods, ongoing improvement in supply chains and falling shipping costs should continue to ease price pressures in coming months. The deflationary pull from improved supply chains will lessen with order now largely restored at US factories and ports. However, there are many possible shifts with the multiple geopolitical powder kegs out there with Russia and China.

A reminder we are coming off June’s 9.1% inflation rate which was the highest in four decades. CPI has moderated after resurging in August with aggressive Fed interest rate rises.

The new data also reflects an update to the weights of goods and services in the spending basket to capture changes in consumer preference. The Labor Department previously updated these every two years but starting with January’s release will revise them annually.

Services Inflation Peaking?

  • Services inflation was up 0.3% month-over-month, versus up 0.5% in February, and up 7.3% year-over-year versus up 7.6% in February.

Services inflation was up 0.3% month-over-month, versus up 0.5% in February, and up 7.3% year-over-year versus up 7.6% in February. Excluding shelter, services inflation was flat, compared to a 0.1% increase in February, and up 6.1% year-over-year versus up 6.9% in February.

3-month annualized % change for CPI services ex-shelter back down to +1.2%, which is slowest rate since summer 2020 @LizAnnSonders

Goods Disinflation is Real

Core goods CPI at +1.0% y/y in February while core services continues to climb +7.3% y/y @LizAnnSonders

Real Earnings

  • US Real Avg Hourly Earnings (Y/Y) Mar: -0.7% (prev -1.3%)
  • US Real Avg Weeklly Earnings (Y/Y) Mar: -1.6% (prev -1.9%)

The Fed is likely to want evidence of an inflation slowdown, prior to the banking collapse another 0.50-point rate rise was on the table at the next meeting as rises “depend on the data we get between now and then.”

Market Reaction (updated at 10:00 AM ET)

After the data official release the 2-year Treasury yield fell 19bps at first and cut that to 10bps. U.S. Treasuries have rallied to fresh highs after the March CPI report showed cooler than expected headline inflation. S&P equity futures initially spiked 0.9% higher post-data but reined that in to about half of the initial rally. The dollar depreciated by about ½% on a DXY basis.

  • The Dow +123.56 at 33808.26, Nasdaq +16.51 at 12048.38, S&P +10.85 at 4121.06

Yields After CPI

  • 2-yr: -11 bps to 3.94%
  • 3-yr: -13 bps to 3.69%
  • 5-yr: -11 bps to 3.45%
  • 10-yr: -5 bps to 3.38%
  • 30-yr: +1 bp to 3.63%

Treasury yields climbed off their post-CPI lows. The 2-yr note yield, at 3.87% immediately after the release, to 4.00% now. The 10-yr note yield, which plunged to 3.33%, climbed to 3.42%.

Yields Before CPI

  • 2-yr: UNCH at 4.05%
  • 3-yr: -3 bps to 3.79%
  • 5-yr: UNCH at 3.55%
  • 10-yr: +2 bps to 3.45%
  • 30-yr: +1 bp to 3.63%

In forex the USD is lower on the back of lower yields.

Outright deflation for used cars & trucks.

CPI used cars & trucks component continues to tank … component fell by -13.6% y/y in February, a multi decade low @LizAnnSonders


Yearly Price Increases

  • A slowdown was seen in food prices (10.1% vs 10.4%) while cost of used cars and trucks continued to decline (-11.6% vs -8.8%).
  • Cost of shelter increased faster (7.9% vs 7.5%)
  • Energy rose (8.7% vs 7.3%), with gasoline prices rising 1.5%, reversing from a 1.5% decline in December. On the other hand, both fuel oil (27.7% vs 41.5%) and electricity prices slowed (11.9% vs 14.3%).

Shelter Costs Adding to Homeless

Shelter component of CPI had largest m/m increase since July of 1982

Shelter costs, the biggest services’ component and make up about a third of the overall CPI index. Owners’ equivalent rent portion of CPI edged higher to 8% y/y in March, on m/m basis, gain eased from +0.7% to +0.5%. Rent inflation in the US is the highest since July of 1982.

Owners’ equivalent rent (OER) portion of February CPI up +8.0% y/y @LizAnnSonders

Rent Inflation

Rent Inflation in the United States continued to climb to 8.2% in March 2023, up from 8.1% in the prior month. It was the highest reading since June 1982. What is unnerving the housing components of the report have a lag between real-time changes in rents and home prices and when those are reflected in Labor Department data.

Rent Inflation

Housing Utilities

United States CPI Housing
US CPI Housing Utilities

Many analysts had expected back in March 2022, clearly, they have been mistaken to mark the inflation peak although the war in Ukraine is far from over, supply chain bottlenecks persist, and consumer demand remains elevated which is likely to weigh on the CPI.

The hope was the slowdown back in April was a sign that inflation had probably peaked, the inflation is unlikely to fall to pre-pandemic levels any time soon and will remain above the Fed’s 2% target for a long time as supply disruptions persist and energy and food prices remain elevated.

Food Inflation Persistently High, But Falling

United States Food Inflation
US CPI Food inflation

Cost of food in the United States increased at a slower 9.5% from a year earlier in February 2023, decelerating from a 10.1% rise in January and a peak of 11.4% in last August. It was the lowest reading since April of 2022, as prices slowed down further for food at home (10.1% vs 11.3% in January), while accelerating for food away from home (8.4% vs 8.2%)

Transportation Inflation Persists

United States CPI Transportation
US CPI Transportation Inflation

The effects of the coronavirus pandemic, then the supply crisis and throw in the Russian invasion of Ukraine on top have been weighing on prices. Since last year many businesses closed and lockdowns were imposed, denting economic activity leaving the world vulnerable.  A jump in commodities and material costs, coupled with supply constraints pushed producer prices up and some companies are passing those costs to clients

“I’m making more money…But I don’t see it because I’m paying more money for stuff now.” Low-wage workers are getting sharp raises. Inflation is eating them up. via Greg Ip WSJ

 Source: BLS BLS

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