Inflation slows to 5% in March, a nearly 2-year low, but core consumer price gains accelerate

March 2023 inflation numbers are a critical economic indicator. Keep track of the latest figures and what they mean for the economy with our in-depth analysis.

Inflation, the rate at which prices for goods and services increase, has been a hot topic in the economy over the last few years. The latest report shows that inflation slowed to 5% in March 2023, a nearly 2-year low, but core consumer price gains have accelerated.

The Consumer Price Index (CPI), a measure of the average change in prices over time for a basket of goods and services commonly purchased by households, increased by 0.3% in March 2023. This is less than the 0.5% increase in February and marks the slowest increase since April 2021.

However, the core CPI, which excludes volatile items such as food and energy, increased by 0.6% in March, the biggest increase since October 2021.

While the slowdown in overall inflation may seem like good news for consumers, it is important to look at the bigger picture. The 5% inflation rate is still higher than the Federal Reserve's target of 2%, and the acceleration in core consumer prices indicates that inflation may continue to rise in the coming months.

Inflation slows to 5% in March

Supply chain disruptions

One factor driving the acceleration in core consumer prices is the supply chain disruptions caused by the COVID-19 pandemic. The pandemic led to disruptions in global trade and shipping, causing shortages and price increases for goods such as semiconductors, lumber, and gasoline. These supply chain issues are expected to persist, contributing to higher prices for consumers.

Another factor contributing to the increase in core consumer prices is the rise in wages. As the economy continues to recover from the pandemic, many companies are struggling to find workers. This has led to an increase in wages as companies compete for employees. Higher wages can lead to higher prices for goods and services as companies pass on the increased labour costs to consumers.

The Federal Reserve monitors inflation

The Federal Reserve has been closely monitoring inflation and has taken steps to control it. In November 2022, the Fed announced that it would begin tapering its bond-buying program, which has been aimed at keeping interest rates low and stimulating economic growth.

The Fed has also raised interest rates three times since December 2022, with the most recent increase in March 2023.

Slower economic growth

While these actions may help control inflation, they can also have negative impacts on the economy. Higher interest rates can lead to slower economic growth and can make it more expensive for businesses and consumers to borrow money. The Fed must balance the need to control inflation with the need to support economic growth.

Inflation can also have a significant impact on consumers. Higher prices for goods and services can lead to a decrease in purchasing power, making it more difficult for consumers to afford necessities. This can lead to a decrease in consumer spending, which can have negative effects on businesses and the economy as a whole.

One way that consumers can protect themselves from inflation is by adjusting their spending habits. This may include cutting back on non-essential purchases or looking for cheaper alternatives to expensive goods and services. Consumers can also look for ways to increase their income, such as taking on additional work or starting a side business.

Businesses can also take steps to mitigate the impact of inflation. This may include looking for ways to reduce costs, such as finding more efficient supply chain options or negotiating better prices with suppliers. Businesses may also need to adjust their pricing strategies to account for higher costs, while remaining competitive in the market.

Core consumer price gains accelerate

While inflation has slowed to a nearly 2-year low, the acceleration in core consumer prices suggests that it may continue to rise in the coming months. The supply chain disruptions caused by the pandemic and the rise in wages are likely contributing factors to the increase in consumer prices.

Gasoline prices were among those that decreased, which could indicate that consumer demand for energy is lower than expected. Also, wage growth has not kept up with rising prices, creating further deflationary pressure. All of these factors must be taken into consideration when deciding how best to handle monetary policy going forward.

Too little action could leave consumers unable to purchase goods and services they need, while too much could lead to runaway inflation and asset bubbles. The Fed must tread carefully if the US economy is to remain healthy over the long term.

Tumisang Bogwasi
Tumisang Bogwasi

2X Award-Winning Entrepreneur | Empowering Brands to Generate Leads, Grow Revenue with Business Strategy and Digital Marketing | Founder, CEO of Fine Group