Prices increased 0.1 percent in March: Which goods and services are driving inflation?

To cool the US economy, the country’s central bank, the Federal Reserve, has imposed a series of interest rate hikes over the last year. To slow the movement of money through the economy, the Fed raises rates as a way to disincentivize borrowing. As the cost of borrowing money rises, economists assume that firms and individuals will take out fewer loans, which should lead to a decrease in aggregate demand and a subsequent fall in prices. To date, interest rate increases have managed to push down consumer demand, but the Consumer Price Index (CPI) figures from March show a new trend is emerging.

Which goods and services drove the increase in prices?

In March, for the eighth consecutive month, prices rose, increasing on average 0.1 percent, according to the Bureau of Labor Statistics. The figures from March place the year-over-year inflation rate, based on the goods and services included in the Consumer Price Index, at five percent. This figure has fallen consistently since last June when over the course of just one year, prices increased just over nine percent.

Housing costs continue to rise

In February, the cost of housing accounted for around seventy percent of the 0.4 percent average price increase in the US. Compared to a year prior, prices had risen for owners and renters by 8.2 percent; however, renters were confronted with higher prices, with their average cost of shelter increasing by 8.8 percent.

At the end of the March, Governor Lisa D. Cook of the Federal Reserve said in a speech that “rent increases on new leases have slowed sharply over the past six months.” For Governor Cook, this slowing, coupled with a “significant supply of multifamily housing is coming online,” should help to push down prices in the housing market.

The BLS reported that in March, housing costs rose 0.6 percent, maintaining the level of year-over-year growth at 8.2 percent. There is some positive news for renters, who saw prices increase only 0.5 percent, compared to 0.8 percent the month prior.

Food prices have fallen 1.7 percent in 2023

The cost of groceries, gasoline, and utilities has also been a major driver of inflation.

In March, the cost of groceries fell 0.3 percent, offsetting the increase seen in February. This fall in average prices brought the year-over-year change down from 9.5 percent to 8.4 percent from February to March.

Energy services which include the price of natural gas and electricity, have fallen steeply since January and should continue to do so as the warmer months approach. These commodities saw prices surge to unseen-before levels after the Russian invasion of Ukraine upended energy markets. Over the last year, it looks like they hit their peak and are coming down, but still, in March the price for households remained well above the figure recorded a year ago.