The drop in headline inflation in March is not quite the good news that it might seem at first glance.
Annual inflation fell from 6% in February to 5% in March, the Bureau of Labor Statistics reported Wednesday morning, the lowest rate since May 2021. President Joe Biden touted the report as showing “continued progress in our fight against inflation” — which is now down from 8.9% in June.
BIDEN CELEBRATES AS INFLATION FALLS TO 5% IN MARCH
But the details of the new report make clear that underlying inflationary pressures are still strong.
Specifically, “core inflation” — that is, inflation with the volatile components of food and energy stripped out — did not fall in March. Instead, it rose a 10th of a percentage point, to 5.6%.
Economists generally see core inflation as more indicative of trends in price changes, meaning that the higher core inflation rate will cause concern for officials at the Federal Reserve. Stubborn core inflation will lead the central bank to favor tighter monetary policy — meaning more pain in store for people looking to borrow money to buy houses, cars, and other big-ticket items.
The divergence between headline and core inflation was due to a sharp 3.5% drop in energy prices in March. But it’s expected, based on more recent data, that energy prices are headed back up: Oil prices have subsequently risen and are expected to head higher.
Even further into the details, the metrics of inflation watched most closely by the Fed were higher than expected.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
In particular, Fed Chairman Jerome Powell has drawn attention to the gauge of core services minus shelter, a measure that has become known as “supercore” inflation. Powell favors the measure on the grounds that it is most affected by trends in the labor market — if workers are too scarce and employers are bidding up wages unsustainably, that should translate into higher supercore inflation, the thinking goes. Powell said in November that supercore inflation may be “the most important category for understanding the future evolution of core inflation.”
Suprecore inflation rose 0.4% just from February to March, higher than expected and a pace that is well above the Fed’s 2% target for overall annual inflation.