Core CPI Slips to 2.8% Annually, Headline Inflation Falls Below Estimates

U.S. Inflation Cools in March as Energy Prices Drag Down Headline CPI

The Consumer Price Index (CPI) for March showed a modest retreat, with headline inflation declining 0.1% month-over-month on a seasonally adjusted basis, following a 0.2% increase in February. The core CPI, which excludes food and energy, edged up just 0.1%, signaling weaker underlying price pressures. Year-over-year, overall CPI rose 2.4%, while core inflation posted a 2.8% gain—the lowest 12-month core reading since March 2021.

Energy Prices Drive Headline Decline

Energy was the main drag on the headline figure, with the energy index falling 2.4% in March. A sharp 6.3% drop in gasoline prices accounted for the bulk of the decline, offsetting gains in electricity (+0.9%) and natural gas (+3.6%). Over the past 12 months, energy prices have decreased 3.3%, with gasoline down nearly 10%, easing cost pressures for consumers and businesses alike.

Food Prices Tick Higher Again

Food inflation continued to rise, with the overall food index up 0.4% in March. Prices for food at home rose 0.5%, led by a 5.9% surge in egg prices and a 1.3% increase in the meats, poultry, fish, and eggs category. Food away from home also increased 0.4%. On an annual basis, food prices climbed 3.0%, reflecting ongoing supply-side constraints in some categories.

Core Services Stay Elevated but Show Signs of Easing

Shelter, a key component of core inflation, rose 0.2% in March, slowing slightly from previous months. Owners’ equivalent rent increased 0.4%, while rent of primary residence rose 0.3%. Transportation services dropped 1.4%, weighed down by airline fares (-5.3%). Meanwhile, personal care and medical care indexes both rose, though prescription drugs fell 2.0%. Despite pockets of strength, core services inflation is showing early signs of stabilization.

Softening Inflation Strengthens Rate Cut Expectations

The moderation in both headline and core inflation supports the case for policy easing by the Federal Reserve later this year. With core CPI trending lower and energy acting as a deflationary force, traders may increasingly price in a more dovish Fed stance.

Market Forecast: Bearish USD, Bullish Equities and Bonds

The softer inflation data tilts the outlook toward a bearish bias on the U.S. dollar, as rate cut expectations gain traction. Equities and Treasuries are likely to see support from easing inflation pressures and the potential for lower interest rates. Traders should watch upcoming Fed commentary and April inflation data for confirmation of this trend.