Preview: What to Look for in the March CPI

The monthly Consumer Price Index (CPI) is scheduled for release by the Bureau of Labor Statistics on Wednesday, April 12 at 8:30 AM Eastern Time.

We continue to see evidence that the Federal Reserve Board’s rate hikes have slowed the economy, most obviously in construction and manufacturing, both of which showed modest job losses in March. While inflation has clearly slowed, it is still running at a pace that is far in excess of the Fed’s 2.0 percent target.

The recent pattern of wage growth should be encouraging on this front. The average hourly wage has increased at just a 3.2 percent annual rate over the last three months. This is well below the pace of wage growth in the years just before the pandemic, when inflation was below the Fed’s 2.0 percent target. Given the trend 1.4 percent rate of productivity growth (both before and since the pandemic), the only way we can see inflation persisting at a pace above the Fed’s target is if there is a sustained shift from wages to profits, which is a development no one is predicting.

Assuming that the rate of wage growth currently reported is not a fluke (the data are erratic and subject to large revisions), we should expect inflation to slow toward the Fed’s target over the course of 2023.

Non-Housing Services

Fed Chair Jerome Powell has indicated that he is placing special emphasis on inflation in non-housing services, which he sees as being driven primarily by wages. This picture is not entirely accurate. The price of services depends to a large extent on goods inputs. For example, the price of motor vehicle repair and maintenance, as well as auto insurance, depends to a large extent on the price of parts, which rose by 21.9 percent in the pandemic due to supply chain problems.

Nonetheless, the slowing wage growth we have seen in recent months should mean lower inflation in many of these services, especially as the lessening of supply chain pressures means less inflation or even falling prices for many inputs. Inflation in some services was never very high. For example, the price of medical care services has risen just 2.1 percent in the year and actually fell 0.7 percent in each of the last two months. 

The declines in medical service prices will not continue, and will likely be partially reversed in March, but we should see improvements in areas like transportation services and recreation services. In addition, the restaurant index should grow more slowly (it was up 0.6 percent in February and 8.4 percent year over year), as wage growth has slowed in the sector.


Rent has played a huge role in pushing inflation in 2022. The two rental indexes account for 31 percent of the overall CPI and almost 40 percent of the core index. The rent proper index has risen by 8.8 percent over the last year, while the owners’ equivalent rent index has risen by 8.0 percent.

We know that the inflation shown in the CPI indexes will soon slow sharply based on private indexes of marketed units, which have been showing much slower rent increases, and even decreases, since the late summer. These indexes lead the CPI by six to twelve months, which means we should be at a point where the CPI is picking up the slowdown in rental inflation. The rent proper index rose by 0.8 percent in February, the owners equivalent rent index rose by 0.7 percent. It is likely that these figures will be 0.1 to 0.2 percentage points lower in March.

Supply Chain Goods

The big price increases we saw due to supply chain problems in 2021 and 2022 have been partially, but not entirely, reversed. The prices of many items, most notably new and used vehicles, are still far above the pre-pandemic trend, even after adjusting for the more rapid nominal wage growth we’ve seen since the pandemic. 

We can expect to see some further price declines for vehicles, appliances, furniture, car parts, and other items. Some of this will likely show up in March, with core goods showing flat or negative inflation.

Food and Gas Prices

These non-core items play a huge role in people’s perceptions of the economy. Food prices had been rising rapidly in the pandemic due to a variety of factors. Food price inflation has slowed in recent months, with prices rising 0.4 percent in January and 0.3 percent in February. 

We are likely to see further slowing in March, as inflation in food prices at earlier stages of production has slowed sharply. The final demand index for food fell 2.2 percent in February, after dropping 1.2 percent in January and 0.9 in December. Some of these declines should be reflected in the CPI in March. We also know that wholesale prices of some very visible items, like eggs, have fallen sharply in recent weeks.

As lower prices at the wholesale level get reflected in retail prices, it will both increase workers’ purchasing power and improve their views of the economy. Some of these declines will be reflected in the March CPI data.

Gas prices have largely stabilized, with oil prices hovering near $75 a barrel for most of March. The jump in prices at the end of the month, following the announcement of OPEC production cuts, will not be reflected in the March CPI, although it may mean higher prices in future months.

Summary: Continuing Improvement on Inflation

With wage growth slowing and the price of many commodity inputs falling back to pre-pandemic levels, we should see  a better picture of inflation in the months ahead. Much will depend on how quickly the slowing inflation in the rent of marketed units shows up in the CPI rental inflation measures. However, there can be little doubt that the trend for inflation is downward. The only question is how fast it shows up in the CPI and PCE deflator.  

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