Gauge shows price pressures stayed high in U.S. last month

Index has been stuck above Fed’s 2% target so far in 2024

A measure of inflation closely tracked by the U.S. Federal Reserve remained uncomfortably high in March, likely reinforcing the Fed’s reluctance to cut interest rates anytime soon and underscoring a burden for President Joe Biden’s re-election bid.

Friday’s report from the government showed that prices rose 0.3 per cent from February to March, the same as in the previous month. It was the third straight month that the index has run at a pace faster than is consistent with the Fed’s two per cent inflation target. Measured from a year earlier, prices were up 2.7 per cent in March, up from a 2.5 per cent annual rise in February.

After peaking at 7.1 per cent in 2022, the Fed’s favoured inflation index steadily cooled for most of 2023. Yet so far this year, the index has remained stuck above the central bank’s target rate. More expensive gas and higher prices for restaurant meals, health care and auto repairs and insurance, among other items, have kept the overall pace of price increases elevated.

With new-car prices up sharply in the past few years, auto repair and replacement costs have risen especially fast. Auto insurance, a major driver of inflation in recent months, was up 8 per cent in March from a year earlier.

“This isn’t going to sit overly well with the Fed,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “I think it’s clear they’re going to keep rates higher for longer.”

Like many economists, Sweet envisions no rate cuts before September.

Friday’s inflation data showed that excluding volatile food and energy costs, “core” prices rose by an elevated 0.3 per cent from February to March, unchanged from the previous month. Compared with a year earlier, core prices rose 2.8 per cent for a second straight month.

This isn’t going to sit overly well … I think it’s clear they’re going to keep rates higher for longer.

RYAN SWEET CHIEF U.S. ECONOMIST AT OXFORD ECONOMICS