The most well-known indicator for U.S. Inflation is the Consumer Price Index, which is published by the U.S. Bureau of Labor Statistics. It measures monthly price changes for a wide basket of consumer goods and services. Each month, we get a breakdown of those price changes for a litany of consumer expenditures, such as food, energy, housing, apparel, transportation, medical care, education, and many more goods and services. Often, this gets reported in high-level categories, such as Food, Energy, and Services. However, the underlying report publishes price changes for categories specific to breakfast cereal, bananas, window coverings, and recreational books. While each component receives a varied weighting based on importance, it is undoubtedly interesting to see what areas within a category have been rising or falling.  

Core-CPI rose by 0.4% in March on a seasonally adjusted basis, moving the critical year-over-year inflation print to 3.5%. The monthly inflation increase was largely driven by an increase in shelter and gasoline, which accounted for almost half of the monthly increase. Categories such as motor vehicle insurance, apparel, medical care, and personal care remained stubbornly high.  

Prices for the “services less energy services” (Shelter, Medical Care, Transportation) category, which receives the largest weighting at over 60%, happen to be the area where inflation continues to pester. Motor Vehicle Repair and Insurance have remained high; however, as vehicle prices move lower, there is reason to believe we could see some relief here. 

The stubbornness of inflation has significantly impacted the Federal Reserve’s view on June rate cuts. While the economy remains relatively strong, the Fed has the wiggle room to keep rates steady. At the same time, they wait for signs inflation is continuing towards their 2% target. Without a considerable shift in upcoming economic data, we think June rate cuts are very unlikely at this point. The original expectation from the FOMC for three rate cuts this year is likely to be reduced to 1 to 2, and we have seen that being priced into markets recently. 

By Ryan Zywotko, CFA, CMT

Director of Investments