As per the March 2023 US inflation rate report, inflation appears to be declining due to a decrease in energy prices from the previous year's surge.
The report indicates a 5% increase in consumer prices from last month compared to the same period last year, which extends the recent deceleration of price hikes.
However, experts caution that price pressure still exists beneath the surface, although swings in gasoline and other energy costs are hiding it.
Food Prices Remain Unchanged, Offering Relief to Households
According to Reuters, the report shows that food prices were unchanged, the weakest reading since November 2020. Households are getting relief on some products at the supermarket, which is good news for consumers.
The cost of food consumed at home fell 0.3%, the first decline since September 2020, with egg prices tumbling 10.9%. Meat, fruits, and vegetables were also cheaper, but prices for cereals, bakery products, and nonalcoholic beverages increased. It also costs more to eat out.
The report reveals a monthly gain of 0.1%, complicating a smooth downward path to normal price levels. The mixed report from the Labor Department on Wednesday offered some encouragement in the fight against inflation, as service inflation showed signs of moderating.
Energy Prices Pull Back While Rent Remains High
The March 2023 inflation report shows that energy prices have retreated from their spike last year, when Russia invaded Ukraine.
As ABC reported, this retreat has contributed to the easing of the US inflation rate, which is now at its lowest since May 2021.
The Federal Reserve is aiming to bring inflation down to normal levels without pushing the US into a recession, and the latest data marks the ninth consecutive month of smaller price hikes. Despite a mixed report from the Labor Department on Wednesday, indicating that inflation remains higher than the Federal Reserve's preference, the cost of gasoline decreased.
However, persistently high rents kept inflation pressures bubbling beneath the surface, which could prompt the Federal Reserve to raise interest rates again next month.
Nevertheless, the latest report showed some signs of moderation in service inflation, and rents rose at their slowest pace in nearly a year. This offers some encouragement in the fight against inflation. These are forward-looking signs that suggest inflation will slow further in the coming months, but economists warn that the underlying price pressures remain.
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The reason behind the rising inflation
Consumer prices saw a surge in early 2021 as the U.S. economy reopened after pandemic-related shutdowns.
According to CNBC, Americans had saved money from government relief and were eager to spend on dining out, entertainment, and vacations. However, the quick economic restart caused a backlog in global supply chains, which was further worsened by Russia's invasion of Ukraine.
As a result, inflation initially affected physical goods, such as used cars and trucks, but has now spread to services, including haircuts, auto insurance, airline fares, medical care, and rent. With a strong demand for workers, low unemployment, and robust wage growth, businesses have raised their prices, especially in labor-intensive service industries.
The Federal Reserve has been increasing interest rates to control inflation by raising borrowing costs for consumers and businesses. Recent banking sector turmoil is expected to make banks more hesitant to lend money, tighten credit conditions, and further cool the economy to help control inflation.
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