Inflation Shows Signs of Cooling as Fed Weighs Next Move

“Today’s report shows continued progress in our fight against inflation,” Mr. Biden said. He added: “While inflation is still too high, this progress means more breathing room for hard-working Americans — with wages now higher than they were nine months ago, after accounting for inflation.”

The nine-month figure was carefully crafted to emphasize recent real-wage gains. The Labor Department reported that, over the full course of the last year, inflation-adjusted wages have fallen 0.7 percent.

Republicans attacked Mr. Biden over the wage figures and the overall persistence of high inflation, which has dogged Mr. Biden throughout his tenure.

“Today’s Consumer Price Index marks the 23rd straight month inflation has been at or above 5 percent, and the 24th straight month of negative real wages,” Tommy Pigott, rapid response director for the Republican National Committee, wrote in a news release. “It’s why poll after poll shows Americans disapprove of Joe Biden’s economy.”

White House economists have maintained faith in recent months that the economy was finally making a slow-but-sure transition to what Mr. Biden calls “steady, stable growth.” Monthly job growth has declined, though it remains well above the levels that Mr. Biden last year said would be necessary to bring price growth under control. Global oil prices, while volatile, have fallen from where they were when Russia invaded Ukraine a year ago.

And administration officials say they are seeing early signs, particularly in Tuesday’s report, that housing inflation is slowing — which could help to quickly bring down the headline inflation rate in the months to come.

According to Kelley Blue Book, consumers paid an average of $48,008 for new vehicles last month. That was up from $37,302 in March 2019.

When automakers idled their factories in the spring of 2020, they also halted orders of the computer chips needed to control the operations of engines, transmissions, entertainment systems and other components. At the time, they were not sure how soon production would restart and were looking to slash costs.

At the same time, producers of consumer electronics increased their purchases of semiconductors because sales of laptops, game consoles and other electronics were soaring.

When auto production resumed, car companies found that chip makers didn’t have much production capacity available. That created a shortage that prevented them from making as many cars and trucks as consumers wanted to buy, resulting in a steady rise in prices.

The good news is that used-car prices have been declining for several months. In March the price of used vehicles fell 0.9 percent from the previous month and were 11.2 percent lower than in the year earlier.

For now, analysts who closely watch the gyrations of oil markets say that further price declines are unlikely, however.

“The oil market is going to remain tight,” said Edward Moya, a senior market analyst at OANDA, a trading firm.

There were widely held expectations that China’s economic reopening, after the nation’s stringent Covid-19 prevention policies were lifted, could cause another spike in prices. That possibility, Mr. Moya said, “has underwhelmed,” but he added that the Chinese economy “will do a lot better going forward, and that should keep prices supported.”

In good news for consumers and overall inflation as the spring and summer travel months approach, most investors do not expect any uptick in oil and gasoline prices to be “huge,” said Jason Draho, head of asset allocation for the Americas at UBS Global Wealth Management.

“It matters, but when you factor in all the other things that go into driving inflation — shelter is a third — slightly higher energy prices are not going to change the story very much,” he said.

Prices for food at home fell 0.3 percent over the month, the first decline since September 2020. But prices at restaurants continued to speed up last month, rising 0.6 percent in March compared with the month before.

The index for meats, poultry, fish and eggs declined 1.4 percent over the month. Fruit and vegetable prices fell 1.3 percent and the index for dairy and related products decreased 0.1 percent.

Egg prices, which shot up in recent months because of an outbreak of avian influenza and increased costs for fuel, feed and packaging, fell 10.9 percent in March.

A confluence of factors have led to the recent spike in food prices. The cost of labor, transportation and raw materials have soared, resulting in companies raising prices for consumers. Extreme droughts in the Western United States have also diminished crop yields and pushed up prices for necessary supplies.

The surge in food prices could be starting to ease as wage growth across the sector has slowed and the broader labor market has cooled, said Jayson Lusk, an agricultural economist at Purdue University. Fuel costs have also come down in recent months, he said.

“A lot of the cost you’re paying when you’re buying food is stuff that happens after the farm,” Mr. Lusk said. “So transportation, packaging, advertising, shelving, all of that factors in there as well.”

Price increases for food at restaurants could be slower to come down because more labor costs are typically involved, Mr. Lusk said.

Higher food costs have strained Americans’ budgets, particularly for lower-income households that typically spend a greater portion of their incomes on food.

“This is something you don’t have a choice on,” said Diane Swonk, the chief economist at KPMG. “It takes a larger bite out of their budget just to feed their families, and that’s important because it means less money available for discretionary purchases and it also puts some people more at risk of food insecurity, which is a fancy word for hunger.”

Crucial to investors’ assessments is the pace of inflation and the path of interest rates set by the Federal Reserve to temper rising prices.

Wednesday’s reading of the Consumer Price Index for March arrived largely in line with economists’ expectations. That bolsters the likelihood that the Fed will raise interest rates in May, according to Lauren Goodwin, an economist at New York Life Investments.

That would typically be bad for the equity market, but investors appeared to look past the data to how it might affect what comes next.

Given the shock to the banking system, in part stemming from higher interest rates, further rate increases also raise the possibility that the Fed may go too far and tip the economy into recession. In that environment, inflation could fall more quickly, with some investors betting that the Fed could cut interest rates later this year, supporting financial markets.

“It’s a little bit of mental gymnastics,” Ms. Goodwin said. “Over the past couple of weeks following the bank failures, the market has become much more focused on recession. If this data makes a rate increase more likely in May, then it makes a recession even more likely. The market is seeing that the disinflationary process, while slow, is intact, with recession likely leading to lower interest rates.”

Prices in interest rate futures markets, which allow investors to bet on where interest rates are going, show expectations tilting toward the Fed making a quarter-point increase in May.

Following the latest inflation data, the two-year Treasury yield, which is sensitive to interest rate expectations further out in time, fell sharply to below 4 percent after rising above 5 percent just over a month ago.