Inflation data expected to show continued signs of cooling in March

A closely-watched government measure of inflation is expected to show that price increases cooled further last month.

March’s Consumer Price Index (CPI), slated for release Wednesday, is expected to come in at 5.2%, a slowdown from February’s 6% annual gain, according to estimates from Bloomberg.

The number would mark the slowest annual increase in consumer prices since May 2021 but would still be significantly above the Federal Reserve’s 2% target. The Fed has been raising interest rates to try to bring down inflation, but the central bank risks sending the economy into a recession by hiking rates too high too fast.

On a monthly basis, consumer prices are expected to have risen 0.2% in March, down from a 0.4% increase in February.

On a “core” basis, which strips out the more volatile costs of food and gas, prices in March are expected to have risen 0.4% over the prior month and 5.6% over last year, according to Bloomberg data.

“Core inflation, and core services, should remain sticky-high,” Bank of America analysts wrote in a note Monday, adding that “much of this stickiness stems from elevated rent and owners’ equivalent rent inflation, which should subside in the second half of the year.” Owners’ equivalent rent is the hypothetical rent a homeowner would pay.

Here’s what to expect compared to the prior month’s reading:

• CPI YoY: +5.2% expected vs. +6% in February

• CPI MoM: +0.2% expected vs. +0.4% in February

• CPI “core” YoY: +5.6% expected vs. +5.5% in February

• CPI “core” MoM: +0.4% expected vs. +0.5% in February

Wednesday’s data, a critical element in determining the Fed’s monetary policy, will follow the latest jobs report, which showed a slowdown in hiring last month. 

According to data from the Bureau of Labor Statistics released Friday, the U.S. economy added 236,000 jobs in March while the unemployment rate fell to 3.5%. Still, the slowdown likely won’t be enough for the Fed to pause its aggressive rate hiking campaign.

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As of Monday afternoon, markets were pricing in a 70% chance the Federal Reserve raises rates by another 0.25% in May, according to data from the CME Group.

Forecasts from the central bank released last month suggested one additional 0.25% rate increase was likely this year.

“Our base case is also for a 25 [basis point] hike in June, although there is a good deal of data to be seen before then, beginning with…CPI and retail sales releases,” John Canavan, lead U.S. analyst at Oxford Economics, wrote in a note last week. Retail sales data is scheduled for release Friday.

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]

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