US CPI Lower in March on Falling Gasoline Prices

The US Consumer Price Index fell in March at an annual rate of -2.14 percent. The decrease reversed a sharp upward spike in February, when the annualized inflation rate rose to over 8 percent. Almost all of the volatility in recent months has been due to ups and downs in energy prices, especially gasoline. Energy prices have a weight of over 9 percent in the CPI. Energy prices rose by 5.4 percent in February, and decreased by 2.6 percent in March.

Energy prices are strongly influenced by events in the global economy. For that reason, policymakers at the Fed and elsewhere pay more attention to measures of underlying inflation. One such measure is the core CPI, published by the Bureau of Labor Statistics. The core CPI, which strips out food and energy prices, rose at an annual rate of 1.33 percent in March.

Another measure of underlying inflation is the 16-percent trimmed mean CPI published by the Cleveland Fed. That index drops the 8 percent of prices that increase most in a given month, along with the 8 percent that increase least or decrease most. The 16-percent trimmed mean index rose at an annual rate of just 0.72 percent in March. The following chart shows all three measures.

The Fed considers that inflation of 2 percent is consistent with its mandate to maintain price stability. In March, both measures of underlying inflation were well below the 2 percent target. Furthermore, estimates of expected inflation also remain well below 2 percent over both 5- and 10-year time horizons. In view of those data, most observers consider it unlikely that the Fed will tighten monetary policy any time soon.

Follow this link to view or download a classroom-ready slideshow with charts of the most recent inflation data.