Highlights:
- Headline CPI dipped 0.1% lower on a month-over-month basis but the year-over-year rate accelerated to 2.4% from 2.2%.
- Excluding food & energy products, core CPI increased 0.2% on a month-over-month basis. The year-over-year rate rose to 2.1% from 1.8% as a large monthly drop in telecommunication prices a year ago fell out of the annual calculation.
- Recent underlying inflation trends have been firmer. Month-over-month gains in both core CPI and the alternative core PCE deflator have been running above a 2% annualized rate on average over the last 6 months.
Our Take:
As expected, annual CPI growth ticked up to a 2.4% year-over-year rate in March from 2.2% in February as a large drop in telecommunication prices a year ago finally fell out of the annual calculation. The headline rate is still being boosted in part by higher energy prices than a year ago. Annual core CPI growth, though, bounced back to its highest level since February last year at 2.1% — and slightly above Federal Reserve policymakers’ 2% inflation objective. Recent trends have been stronger than that. The 6-month rolling average of month-over-month core CPI growth was 2.6% at an annualized rate in March by our calculation. That marks the third straight month at a 2 1/2% or greater pace. Month-over-month increases in the alternative core PCE deflator preferred by the Fed have also been running above the Fed’s 2% inflation objective over the half year to February.
There is still little evidence that inflation is coming unhinged on the upside. Further signs of firming, though, along with ongoing tightening in labour markets, add to the evidence that the economy is operating close to if not somewhat beyond long-run capacity constraints. That is fully consistent with the view that — barring some unexpected shock — interest rates will continue to grind higher to gradually withdraw still-accommodative monetary policy conditions
