Personal Finance

Here's the inflation breakdown for March 2023 — in one chart


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Inflation continued to retreat in March as energy prices pulled back from a year ago, when they began to spike due to Russia’s invasion of Ukraine.

But swings in gasoline and other energy mask price pressures that, while easing, remain under the surface, economists said.

“It’s improving and the economy is cooling, but it’s still far from tepid,” Diane Swonk, chief economist at KPMG, said of inflation.

The consumer price index, a key gauge of inflation, rose by 5% in March relative to 12 months earlier, the U.S. Bureau of Labor Statistics said Wednesday.

The index measures price changes across a broad basket of consumer goods and services, such as food, housing, electronics and recreation.

The latest annual reading declined from 6% in February. The reduction doesn’t mean prices fell; they’re still rising, just more slowly than a year ago.  

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A little bit of inflation is good — policymakers aim for about 2% a year, according to a different but related measure.

While still “painfully high,” inflation has eased significantly from its peak of more than 9% in June, said Mark Zandi, chief economist of Moody’s Analytics. Inflation seems poised to fall back to policymakers’ target by this time next year, barring any unforeseen derailments, he said.

“Inflation is fundamentally moderating,” Zandi said. “And all the trend lines look good.”

“I can say that with increasing confidence.”

What drove inflation in March 2023

It’s improving and the economy is cooling, but it’s still far from tepid.

Diane Swonk

chief economist at KPMG

To compare, average pump prices were about $3.54 a gallon this March, according to the U.S. Energy Information Administration. They’ve risen in recent weeks after a bloc of major oil-producing nations announced output cuts.

Housing accounts for the largest share of average household expenses. Elevated inflation in housing has therefore served to prop up CPI readings.

There’s been a “huge” moderation in newly signed rent agreements, said Paul Ashworth, chief North America economist at Capital Economics. But price changes generally take nine months to a year to flow into CPI reports, due to how economists calculate price changes in the housing category, he said.

“The big uncertainty is: We know housing costs should start to moderate … soon [in the CPI], but none of us know exactly when,” Ashworth said.

The food at home index, i.e., grocery prices, fell 0.3% in March, its first monthly decline since September 2020. That’s due to a combination of things, such as lower prices for diesel, a key component in transporting food to stores, and easing supply chain issues, Zandi said.

“It signals the food inflation fever has been broken,” Zandi said.

Why inflation popped up and remains high

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Now, inflation is more a story of “services,” which includes categories such as haircuts, auto insurance, airline fares, medical care and rent, economists said.

That’s largely due to conditions in the job market, characterized by historic demand for workers, low unemployment and strong wage growth, economists said. Higher labor costs pressure businesses to raise their prices, especially in labor-intensive service industries, economists said. While the labor market remains hot, it has been gradually cooling.

The U.S. Federal Reserve has been raising interest rates aggressively to tame inflation. This mechanism aims to increase borrowing costs for consumers and businesses, who pare back spending, thereby cooling the economy and labor market and, ultimately, inflation.

Recent turmoil in the banking sector is expected to reduce banks’ willingness to make loans — and those tighter credit conditions are expected to further cool the economy and help tame inflation.

That credit tightening will likely help cool inflation in the second half of the year, Swonk said.

“It’s a slow squeeze,” she said.



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