April 12, 2023
The process of disinflation continues in the United States
Headline inflation slowed in March after registering a monthly increase of 0.1% in the consumer price index (CPI), with a rise of 0.4% observed in February and contrasting positively with the consensus expectation of 0.2%. In this context, annual inflation reached a rate of 5.0% (vs. 6.0% in February and 5.1% estimated).
Overall, “shelter” costs (+0.6% monthly and +8.6% annually) were the most significant contributor to the index’s monthly increase. This category makes up about a third of the CPI, thus representing an essential factor for the Fed. That offset the drop in the energy index, with a shrink of 3.5% month-on-month and 6.4% year-on-year. Also positively surprising was that the food index was unchanged in March, with the food for home subcategory falling 0.3% in its monthly variation (+8.4% year-on-year). It is the first drop recorded by this subcategory since September 2020.
On the other hand, the index that excludes food and energy, that is, core inflation (core CPI), rose 0.4% in March, which represented a slight decrease from the advance of 0.5% in February. With this, the annual variation stood at 5.6% (vs. 5.5% in February and 5.6% estimated). In addition to the increase in shelter costs mentioned above, there were advances in motor vehicle insurance costs, airfares, furniture, household equipment, and new vehicles. On the other hand, healthcare costs, cars, and trucks saw drops during the month.
In a certain way, these figures corroborate that the disinflation process continues. However, there is still a way to go, mainly in those categories considered “sticky”, such as shelter, transport services, recreational activities, and clothing, due to the lag with which their prices are adjusted. Considering this mix of factors and the strength in the employment data for March (+236k jobs vs. 230k expected), the prospect of the Fed raising the benchmark rate by 25bp in May remains latent. As of today, consensus assumes a 65% probability for this event.