March Inflation—Yet Another Reason to Delay Easing

March US consumer prices rose faster than expected. The reacceleration in supercore inflation suggests the strong inflation readings at the start of the year may not have been mere blips. Franklin Templeton Fixed Income Economist Nikhil Mohan expects the Federal Reserve will likely begin rate cuts in September, but inflation trends may affect the timing of the cuts.

On a monthly basis, US headline and core Consumer Price Index (CPI) topped expectations—both rising 0.4%. The core measure has now risen at that pace for three successive months. While the pace of increase remained unchanged at 0.5% for core services (which is still more than double the 2012–2019 average), the pace of increase for the supercore measure (core services excluding housing) accelerated to 0.7%. Transportation, medical and other personal services largely drove the rise. On a six-month annualized basis, core CPI is now near 4%, while supercore CPI inched above 6% (the highest since October 2022) and has been on an uptrend for the past five months.

Supercore CPI at its Highest Since October 2022

Although shelter inflation ticked marginally lower, the pace of disinflation remains painfully slow. Owner-occupied rents saw another 0.4% month-over-month (m/m) increase. For rents on primary residences, there was a slight downshift in the pace of increase. However, the six-month annualized measures are still running well above 5% and closer to 6% on a year-over-year (y/y) basis.

Core goods CPI turned negative once again (-0.2% m/m). This was primarily due to declines in prices for new and used vehicles, auto parts, recreational, and information technology goods. The one silver lining is that, on a y/y basis, core goods inflation has turned increasingly deflationary—running well below its 2012–2019 average.