Costlier gas, rents likely delaying Fed’s rate cuts

Some items add to inflation, but grocery prices stay flat

WASHINGTON — Consumer inflation remained persistently high last month, boosted by gas, rents, auto insurance and other items, the government said Wednesday in a report that will likely give pause to the Federal Reserve as it considers how often — or even whether — to cut interest rates this year.

Prices outside the volatile food and energy categories rose 0.4% from February to March, the same accelerated pace as in the previous month. Measured from a year earlier, these core prices are up 3.8%, unchanged from the year-over-year rise in February. The Fed closely tracks core prices because they tend to provide a good read of where inflation is headed.

Wednesday’s figures from the consumer price index represent a disappointment for the White House. Republican critics of President Joe Biden have sought to pin the blame for high prices on the president and use it as a cudgel to derail his reelection bid. Polls show that despite a healthy job market, a near-record-high stock market and a decline in inflation from its peak, many Americans blame Biden for high prices.

The March figures, the third straight month of inflation readings well above the Fed’s 2% target, provide concerning evidence that inflation is stuck at an elevated level after having steadily dropped in the second half of 2023. The latest numbers threaten to torpedo the prospect of multiple rate cuts this year. Fed officials have made clear that with the economy healthy, they’re in no rush to cut their benchmark rate despite their earlier projections that they would do so three times this year.

The report “pours cold water on the view that the faster readings in January and February simply represented the start of new-year price increases that were not likely to persist,” Kathy Bostjancic, chief economist at Nationwide, said in a research note. “The lack of moderation in inflation will undermine Fed officials’ confidence that inflation is on a sustainable course back to 2% and likely delays rate cuts to September at the earliest and could push off rate reductions to next year.”

Overall, consumer prices rose 0.4% from February to March, the same as in the previous month. Compared with a year ago, prices rose 3.5%, up from a year-over-year figure of 3.2% in February.

The costs of owning a vehicle were a key reason why prices jumped last month: Auto insurance surged 2.6% in March and is up a dramatic 22% from a year ago. That increase reflects, in part, the rise in new car prices over the past two years.

Average auto repair costs increased 1.7% from February to March and are up a sharp 8.2% from a year earlier. And the price of gas to power most vehicles surged 1.7% last month. Prices for new and used cars, though, fell slightly.

Clothing costs jumped 0.7% in March, the second straight month of sizable increases, though they have barely risen over the past year. Grocery prices, though, were unchanged last month and are just 1.2% higher than they were a year ago, providing relief to consumers after huge spikes in food prices the previous two years.