United States: Inflation Picks Up

Inflation is proving to be decidedly sticky. It’s now at 3.5%, its highest rate since September. This is a disappointing turn of events following its drop to 3.0% in June 2023. Instead of nearing the Fed’s target, the year-on-year growth in prices appears to be moving farther away.

Once again, some of the rise in inflation is due to changes in energy prices. Energy prices increased 1.1% in March, led by a 1.7% jump in gas prices. This is in stark contrast to the 2.7% drop in energy prices we saw in March 2023, and is one of the main factors pushing up annual total CPI growth.

Core CPI, which strips out food and energy, remains disappointingly stubborn. The monthly variation of 0.4% is slightly higher than the 0.3% previously expected. And once again, we can see a significant difference in the prices of goods and services. After posting short-lived growth of 0.1% in February, prices for goods excluding food and energy fell 0.2% in March. This is the ninth monthly drop in ten months. Prices decreased for new and used vehicles, appliances, recreation commodities and smartphones. The decline in goods prices (-0.7% year-over-year) reflects lower supply chain pressures and weak prices on goods from China.

Meanwhile, service prices (excluding energy) continue to rise sharply. As in February, the monthly increase was 0.5%. It’s better than the 0.7% recorded in January, but isn’t a real improvement compared to late 2023—and it doesn’t suggest that inflation will return to its 2% target any time soon. Housing costs crept up to 0.5% after rising 0.4% in February. This is also slightly above the average for the second half of 2023. Medical care service costs were also up, as were insurance and motor vehicle repair.