Inflation concerns continue to linger in the U.S., although there are signs that the Fed rate hikes could be starting to take effect.
The U.S. Labor Department said on Wednesday that the Consumer Price Index (CPI) for March rose 0.1 percent, seasonally adjusted, after increasing 0.4 percent in February. Over the last 12 months, the CPI has risen 5 percent excluding any seasonal adjustment.
Retail apparel prices before seasonal adjustment rose 3.3 percent in March, up from February’s 0.8 percent increase.
A deeper dive into March’s data shows that men’s apparel prices rose 2.7 percent, versus a 0.4 percent gain the prior month. Boys’ apparel prices rose 3.4 percent, up from the 1.3 percent increase the month before.
Women’s apparel was up 3.7 percent last month, versus the 1.4 percent increase the month before. And girls’ apparel jumped the most at up 5.7 percent, versus the 0.3 percent uptick the month before.
Retail footwear prices rose 0.3 percent last month, versus 0.1 percent increase the month before. Boys’ and girls’ footwear rose 2.2 percent, but that was down from the 3.5 percent increase in the prior month. In comparison, men’s footwear prices fell 2.3 percent, versus the 1.6 percent decrease the month before, while women’s footwear prices were up 1.7 percent, against a 0.4 percent decrease in the prior month.
While overall inflation cooled in March, it is still above the Fed target range of 2 percent. But the indication that it appears to be decelerating could be the good news the Federal Reserve is looking for.
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“Seasonally-adjusted headline CPI prices increased at the second-smallest pace in nearly three years in March as energy prices declines and food price increases slowed, and despite a solid increase in core prices,” UBS economist Alan Detmeister wrote in a research note Wednesday. “We expect inflation will gradually slow over the course of the year, though we do not expect to see much slowing next month as gasoline prices are projected to reverse their decline this month and used vehicle prices are expected to increase considerably.”
The expectation is that the Fed’s May meeting could result in just a 0.25 percentage point increase, after which there might be pause in rate increases. The Fed began aggressively tightening interest rates last year, raising it nine times or a total of 4.75 percentage points, to effect a slowdown and tame rising inflation.
The March 21-22 Federal Open Market Committee (FOMC) meeting minutes, released on Wednesday, showed that the central bank considered pausing rate increases following the failure of regional banks Silicon Valley Bank and Signature Bank. But while there was concern over the wider impact of the banking sector’s failures on lending, a still tight labor market and stubbornly high inflation was deemed the higher priority. The FOMC members decided to raise rates by 25 basis points.
While core consumer prices are rising faster than the Fed’s target, “slower inflation is coming in the months ahead as the economy cools and finds better balance in a post-pandemic world,” Wells Fargo economists Sarah House and Michael Pugliese wrote in a research note on Wednesday. The two noted that inventories of goods continue to normalize, while the ongoing contraction in the manufacturing sector “suggests further softening in goods inflation.”
The Wells Fargo economists expect a 25 basis point rate hike at the May meeting, but said that even though the outlook past May is “increasingly uncertain,” the FOMC is likely to keep rates “steady for an extended period of time” in the 5-5.25 percent range as it assesses the effectiveness of its tightening policy.