March Consumer Price Index recap

The headline CPI decreased 5bp (seasonally-adjusted) in March — about 8bp below our below-consensus expectation. The not-seasonally-adjusted change, at +22bp, was about 7bp below recent CPI swaps fixings.

The increase on 10 April 2025, was the smallest monthly increase in the headline CPI in nearly a year as prices for gasoline and other energy commodities fell 6% on a seasonally adjusted basis. On a not-seasonally-adjusted basis, the decline in energy goods was only around 1pp, but these prices are usually rising solidly in March, which did not occur this year.

On a 12-month change, headline CPI slipped to 2.39% in March from 2.82% in February. The March reading is the smallest increase recorded since the start of the inflation surge in early 2021.

Prices for food rose strongly (+0.44% in March, +2.96% over the past 12 months) with both subcomponents (food at home and food away from home) showing strong increases. Food at home prices have been driven up by egg price increases in the past few months. Retail egg prices were still rising strongly through the middle of March, but with wholesale prices having declined considerably since the beginning of March, it is likely that food price increases will slow next month.

Core CPI +0.06%: 12-month core inflation falls to 2.79%. Core CPI prices rose 6bp seasonally-adjusted in March — an increase that was below both consensus and our expectations.

Like with headline CPI, the 10 April 2025 core CPI reading showed slowing at both the monthly and 12-month frequency. Both the monthly change in March and the 12-month inflation rate in today's report were the smallest for the core CPI since the start of the inflation surge in early 2021.

The 17bp slowing from the 23bp increase in the February core CPI to a 6bp increase in March was driven both by core services and core goods. The biggest category surprises were in the services side where lodging away from home (hotel prices) fell 3½% and transportation services prices declined almost 1½%. As a result, prices for core CPI services excluding housing rents decreased 24bp in March following an increase of 22bp in February. We had expected a weak core non-rent services increase (+2bp) driven by falling transportation services prices and weak hotel prices but were surprised by the degree of weakness in these components. The weakness in these travel-related services could be a sign of a weakening economy, but not necessarily — these are volatile prices, and it could just be random noise.

OER (owners’ equivalent rent) increased 40bp in March following increases averaging 29bp over the past 4 months. Based on seasonal factors, and the dynamics of the rotating OER/tenants' rent panels, our models have been expecting a step up in April, and also the following two months, before slowing commences again in the summer. However, the step-up was a bit more than our expectations of a 35bp increase. Given that new tenants' rents are continuing to run at roughly their pre-pandemic pace, we are inclined to take little signal from the pick up in the 10 April 2025 numbers.

Core goods prices fell 9bp in March, below our +7bp projection. Most of the slowing from the 22bp increase in February was from used vehicle prices swinging from a +0.9% change in February to a -0.7% change in March. This used vehicle price slowdown was almost exactly in line with our expectations. We were surprised, however, by a 1.1% drop in medical care commodity prices. Among the other goods components, new vehicle prices rose only 0.1% suggesting little pass-through yet of the tariffs on motor vehicle imports. On the other hand, the CPI for information goods (which includes computers and cell phones) rose 37bp — one of its stronger increases in recent years, which is consistent with the initial pass-through of increased tariffs on US imports from China that took effect in early February and were raised again in early March.