Higher gas and rents keep U.S. inflation elevated, likely delaying Fed rate cuts

Consumer inflation remained persistently high last month, boosted by gas, rents, auto insurance and other items, the government said Wednesday in a report that will likely give pause to the Federal Reserve as it considers how often — or even whether — to cut interest rates this year.

Prices outside the volatile food and energy categories rose 0.4% from February to March, the same accelerated pace as in the previous month. Measured from a year earlier, these core prices are up 3.8%, unchanged from the year-over-year rise in February. The Fed closely tracks core prices because they tend to provide a good read of where inflation is headed.

Wednesday’s figures represent a disappointment for the White House. Republican critics of President Joe Biden have sough to pin the blame for high prices on the president and use it as a cudgel to derail his re-election bid. Polls show that despite a healthy job market, a near-record-high stock market and a decline inflation from its peak, many Americans blame Biden for high prices.

Biden, speaking to reporters, stood by a prediction of a Fed rate cut but said, “This may delay it a month or so, I’m not sure of that."

The March figures provide concerning evidence that inflation is stuck at an elevated level after having steadily dropped in the second half of 2023. Fed officials have made clear that with the economy healthy, they’re in no rush to cut their benchmark rate despite their earlier projections that they would do so three times this year.

The report "pours cold water on the view that the faster readings in January and February simply represented the start of new-year price increases that were not likely to persist,” Kathy Bostjancic, chief economist at Nationwide, said in a research note. “The lack of moderation in inflation will undermine Fed officials’ confidence that inflation is on a sustainable course back to 2% and likely delays rate cuts to September at the earliest and could push off rate reductions to next year.”

Overall consumer prices rose 0.4% from February to March, the same as in the previous month. Compared with a year ago, prices rose 3.5%, up from a year-over-year figure of 3.2% in February.

The costs of owning a vehicle were a key reason why prices jumped last month: Auto insurance surged 2.6% in March and are up a dramatic 22% from a year ago. That increase reflects, in part, the rise in new-car prices over the past two years.

Average auto repair costs increased 1.7% from February to March and are up a sharp 8.2% from a year earlier. Prices for new and used cars, though, fell slightly.

Clothing costs jumped 0.7% in March, the second straight month of sizable increases, though they have barely risen over the past year. Grocery prices, though, were unchanged last month and are just 1.2% higher than they were a year ago, providing some relief to consumers after the huge spikes in food prices in the previous two years.

In the metropolitan area, consumer prices rose 3.4% in March compared with a year earlier due in part to the higher cost of housing and energy.

Residential rent climbed 4.3% last month compared with March 2023 in the 25-county that includes Long Island. The cost of electricity and natural gas increased 19.4% and 3.1%, respectively, in the period. These increases were partially offset by declines in the cost of gasoline and groceries, which both fell 0.3%, year over year.

“Overall, inflation doesn't appear to be of great concern, though the Fed is likely to use this uptick as a reason to hold off on any [interest] rate cuts," said John A. Rizzo, an economist and Stony Brook University professor. "And, predictably, the stock market will overreact to this news in the very near term, only to shrug it off shortly thereafter,” he told Newsday.

The chronically elevated inflation so far this year does suggest that American consumers, on average, remain confident enough to keep spending despite steady price increases, said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives, a consulting firm. Likewise, she said, the surge in auto insurance and repair costs reflect the previous sharp increases in auto sales prices.

“It means that the consumer’s in good shape and accepting price increases still,” Rosner-Warburton said.

Though inflation has plummeted from its peak of 9.1% in June 2022, average prices are still well above where they were before the pandemic.

With James T. Madore