Good news: Inflation drops more than expected 

Inflation slowed in March and is moving closer to the Federal Reserve’s target. 

Key highlights from the report: 

The Consumer Price Index (CPI-U) fell 0.1% in March, marking a positive shift compared to the 0.2% increase in February. This decline reinforces the trend toward more controlled inflation amid a still-challenging monetary policy environment. 

• Annual inflation: 2.4%, down from 2.8% in February and better than the estimated 2.6%. 

• Energy: -2.4% monthly, driven by a 6.3% drop in gasoline prices. 

• Food: +0.4%, with increases both at home and away from home. 

• Core inflation: +0.1% monthly and +2.8% annually, the smallest increase since March 2021. 

• Shelter: +0.2% monthly, +4% annually, the lowest rise since 2021. 

• Other categories: Declines in airfare, used cars, insurance, and recreation. 

The report suggests a gradual yet steady slowdown, bringing inflation closer to the 2% target. However, the Fed remains cautious due to persistent pressures in certain sectors and uncertainty surrounding trade policies. 

Market implications: 
The consensus now expects between three and four federal funds rate cuts (currently at 4.25%-4.50%) throughout the year. No changes are anticipated for the upcoming May 7 meeting. 

Year-over-year percentage change in headline and core inflation 

Source: U.S. Bureau of Labor Statistics