Key takeaways

  • The slightly stronger March Consumer Price Index (CPI) report was driven by rises in shelter and energy prices.
  • March’s stronger year-over-year (YoY) rise in the headline CPI suggests the path to the Fed’s 2% target could take longer than expected.
  • We don’t expect March’s CPI report to alter policymaker’s plans to keep interest rates higher for longer to slow inflation, but we do believe the Federal Reserve (Fed) needs to see more compelling evidence that inflation is slowing in upcoming data releases before beginning to cut interest rates.


John Veit

The March 2024 Consumer Price Index for All Urban Consumers (CPI-U) report marked a third consecutive 0.4% month-over-month (MoM) increase. On a year-over-year (YoY) basis, inflation rose by a stronger-than-expected 3.5% in March, an uptick from the 3.2% YoY rise in February.1 The YoY uptick, coupled with March’s strong employment report, suggests the path to the Fed’s 2% inflation target could take longer than expected.

CPI data plays a key role in the Fed’s interest rate decisions as it continues toward its goal to lower inflation to its 2% target. Given March’s unwelcome YoY CPI rise and strong jobs report, the Fed may need to see more evidence that inflation is moderating before beginning rate cuts.

Report highlights

The rise in March’s CPI was primarily boosted by the shelter and energy components, which together drove more than half of the MoM headline gain.

The energy component increased by 1.1% MoM and 2.1% YoY, the first yearly rise since February 2023.2 Energy prices were boosted by an increase in gasoline prices. We expect energy prices to stay elevated in the near term, reducing consumer purchasing power.

The food index also rose in March by 0.1% MoM, following no change in February and a 0.4% rise in January.

At home food prices also went unchanged in March, as higher meats, poultry, fish and egg prices were offset by lower cereal and bakery products prices.

Furthermore, food away from home prices rose by 0.3% MoM, following February’s 0.1% gain.3 We expect the mild rise in food prices to offset some consumer concerns of inflation expectations, given higher gasoline prices.

Core CPI findings

Core CPI (excluding food and energy) rose for the third consecutive month, with a 0.4% MoM and 3.8% YoY increase. The 3-month annualized rate rebounded to a 10-month high of 4.5%, indicating inflation may remain higher for longer than expected. March’s continued rise in core CPI was primarily driven by a rise in the shelter component, which contributed to over 60% of the YoY gain in core prices.4 We expect core inflation will moderate later this year as the economy and labor market soften amid high interest rates.

Core services inflation rose again in March and remains on the stickier side of inflation, which the Fed is laser-focused on slowing. The shelter component increased by 0.4% MoM and 5.7% YoY in March, driving up core services inflation. Shelter prices were driven higher by 0.4% MoM rises in both rent and owners’ equivalent rent (OER).5 A tenth of a percentage point increase on a monthly OER inflation matters, given that it singlehandedly accounts for a third of the core CPI.

Core goods prices fell 0.2% MoM in March. Prices were weighed down by a 1.1% MoM decline in used vehicle prices, which offset the 0.7% MoM increase in clothing prices that likely was distorted by unseasonal weather conditions – however, there was no evidence that this increase was due to supply chain issues.6 We expect the price of goods to moderate in upcoming quarters as consumer demand softens.

Supercore CPI rises

The Fed also remains focused on the core services inflation excluding housing (SupercoreCPI). In March, the Supercore CPI rose by 0.7% MoM and 4.8% YoY, the fastest YoY pace since May 2023. This rebound was largely driven by a rise in transportation services, as car-insurance premiums rose by 2.6% MoM.7 Primarily driven by the domestic economy, this indicator reflects economic growth is still too high for inflation to return to the Fed’s 2% inflation target.

Line chart showing the contributions of various subcomponents to the overall CPI index from February 2020 to March 2024.

Possible implications for the Fed

March’s CPI report showed inflationary pressures remain too high for the Fed, despite some improvement relative to the 5% YoY headline inflation rate back in March 2023.8

Energy and shelter inflation need to fall significantly lower to hit the Fed’s 2% target. That said, we expect many disinflationary pressures to feed through and bring down inflation this year, including weaker wage growth and a rebalancing labor market.

These factors will play a key role in determining the Fed’s monetary policy decisions in 2024, which will be critical in shaping the economic outlook for both consumers and markets.

On April 3, Fed Chair Jerome Powell described inflation as “moving down toward 2% on a sometimes bumpy path,”9 as the labor market remains rebalanced but strong. The Fed may consider cutting rates later this year if inflation and growth further moderate – but March’s higher inflation report could lead the Fed to delay its rate cuts, especially if upcoming economic data continues to surprise to the upside.

The bottom line

We still expect the Fed to begin cutting interest rates at some point later in the year, as Powell expressed at the Federal Market Committee (FOMC) meeting in March. While the CPI report will likely play a role in the Fed’s interest rate decision-making process at its next FOMC meeting, the Fed’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) deflator, will be released April 26 and will likely play a larger role. For more information on how this economic data may impact your investment strategy, consult a financial advisor.



U.S. Bureau of Labor Statistics (BLS), “Consumer Price Index Summary.” (April 2024)
















Board of Governors of the Federal Reserve System. “Speech – Opening Remarks.”

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