After a big comeback over the past year, inflation slowed in March, the Bureau of Labor Statistics reported Thursday morning.
Prices rose 0.9 percent over the year ending in March, according to the Consumer Price Index, down from 1 percent the month before.
On a month-to-month basis, inflation was up just 0.1 percent. Private-sector economists had expected a 0.2 percent increase.
Setting aside food and energy prices, inflation ticked down from 2.3 percent to 2.2 percent. That measure of “core inflation” is closely watched by economists because it is generally less volatile and a better predictor of future inflation than headline inflation.
At 2.2 percent, core inflation is still at levels it hasn’t been since early 2012, before the Federal Reserve kicked off a third round of large-scale bond purchases now known as “QE3.” And remains close to the Fed’s target, which is 2 percent by a measure that runs slightly lower than the Consumer Price Index.
But Thursday’s report vindicates Fed officials’ projection in March that core inflation would fall, meaning that their inflation target would slip further out of view. At the time, that bet seemed unusual given the upward trend in inflation and the Fed’s own view that prices would keep rising as unemployment fell and the economy neared full health. In her March press conference, however, Janet Yellen attributed some of the recent surge in inflation to “transitory factors” that were likely to abate.
There was a broad-based cooldown in non-food and energy prices in March, led by falling prices for clothes, medical supplies, and plane tickets.
One of the most notable changes, however, was that food prices dipped. The price index for fruits and vegetables fell almost 2 percent in one month, the biggest decline in over 10 years. Over the past year, prices of groceries are down 0.5 percent.
Energy prices also fell, even as the price of gas stabilized. Energy prices were down 13 percent over the past year, largely a reflection of the massive drop in oil prices that took place in part over that time.
One consequence of inflation declining, rather than heating up, is that it mostly rules out the already unlikely possibility of the Fed raising rates at its next meeting in lat April. The Fed is further from its inflation target than previously thought, even if the signs suggest the target will eventually be reached.
“The slowing in both overall and core inflation on a year-over-year basis in March raises some questions about the near-term path of monetary policy,” said Gus Faucher, deputy chief economist for PNC, adding that the “fundamentals point to higher inflation in the near term.”
The Consumer Price Index is adjusted to smooth out seasonal variations.
