Headline Inflation Slows Further in March – Core Inflation Remains Somewhat Elevated
What happened: The Consumer Price Index (CPI) rose 0.1% in March after increasing 0.4% in February. Core CPI rose 0.4% month-over-month compared to 0.5% in February.
What it means: Although consumer prices are still 5% higher when compared to a year ago, the pace of price increases slowed further in March. This was the smallest 12-month increase since the end of May 2021. The consumer price index without food and energy, or core CPI, rose 5.6% on an annual basis. The monthly increase in shelter costs decelerated to 0.6% in March from 0.8% in February, and has come down measurably from its pandemic-era peak.
What Zillow Senior Economist Orphe Divounguy thinks: This was a substantial step down in monthly shelter inflation. In annualized terms, growth of owners’ equivalent rent dropped from 8.3% to 5.3%, after 10 straight months above 7% (annualized).
Despite the deceleration, shelter costs – largely rent – remained the largest contributor to the Core CPI monthly gain. Annual growth of the Zillow Observed Rental Index (or ZORI) – a measure of market rent – continues to fall, suggesting that CPI Rent – and Core CPI overall – should have more reason to moderate as the year progresses.
Rent inflation tends to respond more to a tight labor market than do other components of the Consumer Price Index (CPI). As the labor market continues to cool, rent inflation should start to make more meaningful declines.
The latest inflation data is a step in the right direction and longer term yields – including mortgage rates – fell on the news. When mortgage rates fell in January, housing sales ticked up slightly above normal for that time of the year. Home buyers are stretched thin when it comes to affordability and even a small improvement would support housing market activity this spring.
Numbers to know:
- The Consumer Price Index (CPI) increased 0.1% in February after increasing 0.4% in February. Consumer prices were 5.0% higher when compared to a year ago down from 6.0% in February.
- Core CPI increased 0.4% in March and is now up 5.6% from a year ago up from 5.5% in February.
- The shelter component of CPI led the price gains in March. However, shelter costs posted their smallest monthly gain in the past year.
