In March, inflation increased less than expected, which is being viewed as a positive sign that the Federal Reserve’s rate hikes are finally starting to have an effect. According to the Consumer Price Index (CPI), the rate of inflation rose only 0.1% from February to March, below the estimated 0.2% and last month’s 0.4%. Year over year, the rate of inflation dropped from 6% to 5%.
Transportation saw the largest increase, rising by 1.4%, followed by increases in shelter and medical care. However, grocery shoppers received a break as the price of food at home fell for the first time since September 2020, dropping by 0.3%. Energy prices also decreased, led by a 7.1% decrease in utility gas and a 4.6% drop in gasoline prices.
Many are taking this as a positive sign that the economy is finally responding to the Federal Reserve’s efforts to combat inflation. There is a renewed optimism that inflation could be tamed without causing widespread job loss, especially in light of the recent jobs report, which economists have deemed as having added just the right amount of jobs.
Janet Yellen, the treasury secretary and former head of the Federal Reserve, echoed this sentiment at a recent World Bank meeting, stating that she did not anticipate a recession in the near future. She cited strong job growth and lowering inflation as reasons why she believed the U.S. economy could still achieve a soft landing.
Despite the optimism, traders are still pricing in a 25 basis point increase in interest rates at the Fed’s next meeting in May, according to CME Group’s FedWatch tool.