Cheaper gas and food provide some relief from inflation

WASHINGTON — Inflation for consumers eased in March, with less expensive gas and food providing some relief to households that have struggled under the weight of surging prices but likely still keeping the Federal Reserve on track to further raise interest rates.

The government said Wednesday that consumer prices rose just 0.1% from February to March, down from 0.4% from January to February and the smallest increase since December.

Measured from a year earlier, prices were up just 5% in March, down sharply from February’s 6% year-over-year increase and the smallest rise in nearly two years. Much of the drop resulted from price declines for such goods as gas, used cars and furniture, which had soared a year ago after Russia’s invasion of Ukraine.

Excluding volatile food and energy costs, though, so-called core inflation remains stubbornly high. Core prices rose 0.4% from February to March and 5.6% from a year earlier. The Fed and many private economists regard core prices as a better measure of underlying inflation.

Price increases in the economy’s vast service sector — ranging from rents and restaurant meals to haircuts and auto insurance — are keeping core inflation high, at least for now. That trend is widely expected to lead the Fed to raise its benchmark interest rate for a 10th straight time when it meets in May.

Still, there were positive signs in Wednesday's report that suggested that inflation pressures are cooling. Rental costs rose 0.5% from February to March, still high but the smallest increase in a year. Grocery prices fell 0.3%. That was the first such drop in 2 1/2 years and was a welcome respite for Americans suffering from painfully elevated food costs.

Used car prices, which were an early driver of high inflation, fell 0.9%, the ninth straight monthly decline. Gas prices, which dropped 4.6% just from February to March, have tumbled 17% over the past year.

Food costs climb locally

In the 25-county region that includes Long Island, consumer prices rose 4.6% last month compared with a year earlier. It was the smallest year-over-year increase since December 2021, according to the federal Bureau of Labor Statistics in Manhattan.

Prices in the metropolitan area fell 0.1% from February to March. The last time there was a month-over-month decline was July 2022.

The bureau's regional commissioner William J. Sibley attributed the moderation in its metro-area consumer price index to a drop in energy prices, particularly the cost of gasoline and electricity. Pump prices fell 20.4% in March compared with a year earlier while the cost of electricity was down 1.1%.

Prices for used automobiles also fell 11.2%, year over year.

But residential rents continued to climb, rising 5.8% last month compared with March 2022. The cost of groceries rose 7.8%, with cereal and baked goods up 11.5%.

"This is more evidence of the long gradual decline in inflation," said John A. Rizzo, an economist and Stony Brook University professor. Still, "inflation remains significantly above the Federal Reserve's inflation target of 2%" for annual price growth.

He continued, "So, it seems likely that the Fed will raise interest rates by another quarter point in May. The wisdom of such a move is questionable." 

Fed officials have projected that after one additional quarter-point hike next month — which would raise their benchmark rate to about 5.1%, its highest point in 16 years — they will pause their hikes but leave their key rate elevated through 2023.

When the Fed tightens credit with the goal of cooling the economy and inflation, it typically leads to higher rates on mortgages, auto loans, credit card borrowing and business loans. The risk is that ever-higher borrowing rates can weaken the economy so much as to cause a recession. 

On Tuesday, the International Monetary Fund, a 190-nation lending organization, warned that persistently high inflation around the world would likely slow global growth this year and next. — with James T. Madore