CPI Dips in March – is it a Trend or a Blip?
Peter Bernstein, Chief Economist pbernstein@rcfecon.com, 312-431-1540 x1515
Louise Collis, Senior Economist
April 10, 2025
The Current Situation
The CPI declined 0.1% in March, lowering the twelve-month inflation rate to 2.4%. Core CPI rose just 0.1%, resulting in a 2.8% annual inflation rate, the lowest core inflation rate since early 2021. The question is whether March’s benign inflation numbers are a trend toward the Fed’s 2% goal or a one-month blip. Recall that May and June of 2024 both showed no monthly inflation, only to have price increases pick up again as the year progressed. And March’s numbers do not reflect the impact of the partial tariffs that were implemented in early April. Even so, to the extent that tariffs boost the price level it is better, or less bad, if they do so when inflation is on an otherwise downward trend.
Another area to watch is the difference in price changes for goods (or commodities as referred to in the CPI report) and services. In March, year-over-year goods price inflation was 0.0% but services inflation clocked in at 3.7% vs last year, in line with the 3.8% increase in average hourly earnings.
Given the on-again, off-again nature of tariff proposals, and other economic uncertainties, it is unlikely that the March numbers will change the Fed’s current “wait and see” approach. But if the economy slows, as many expect, lower inflation will remove one obstacle in the way of future rate cuts.
RCF’s Inflation Scorecard
RCF’s Inflation Scorecard is based on analysis of 20 different price series comprising 98% of the total consumer price index. Each of these price series represents a portion of the CPI based on household spending patterns. For example, food purchased for at-home consumption is about 8% of the typical consumer’s budget; it has a weight of 8.04 out of a total index of 100.
Our scorecard presents two metrics to track month-to-month price increases. The first metric is the share of the index for which inflation in the most recent month is rising (greater than the prior month’s inflation) vs. the share of the index for which inflation is falling (lower than the prior month) or prices fell (deflation).
RCF Inflation Scorecard: March 2025
Our March scoreboard paints a somewhat less optimistic picture of the March CPI report. While overall prices fell, 52% of the weighted CPI had rising inflation in March, though half of that was due to an increase in the monthly inflation rate for owner’s equivalent rent. The combined weight of CPI components with falling inflation or deflation totaled 33% in March compared with 35% in February.
Our second metric is the share of the index for which the most recent month’s inflation exceeded 0.2%. In March, 63% of the weighted CPI saw a greater than 0.2% price increase, the best monthly reading since August 2024. Even so, more than half of the CPI still had monthly price increases higher than the rate consistent with the Fed’s 2% annual inflation target.
Our conclusion is that March was a good news and bad news report, with the good news outweighing the bad. Whether that continues will determine if March was a key step in finally driving inflation down to 2% or another short-term positive that fades in the following months.
Analysis of Individual Components of the Consumer Price Index
Sources: Bureau of Labor Statistics and RCF Calculations 1. Inflation direction indicates whether monthly inflation in March was higher or lower than monthly inflation in February. Deflation means prices fell in March vs. February.
Highlights:
- Food at home prices are creeping upward again, rising 0.5% in March and 2.4% year-over-year. Food away from home rose 0.4% for the second straight month and are up 3.8% vs. last March.
- Owner’s equivalent rent rose 0.4% in March, higher than the 0.3% increase in February, and 4.4% vs. a year ago. Rents rose 0.3%, the same as in February and up 4.0% for the year. Shelter prices continue to be key drivers of inflation. Excluding them, the CPI increased only 1.5% over the past 12 months.
- Several categories saw prices fall in March led by the 6.2% decline in motor fuel prices. Another key development was the 0.8% decline in vehicle insurance prices, which had until now been rising at double-digit annual rates. Other categories showing deflation included lodging away from home and public transportation/airfares, though those could be a sign of declining demand for travel.
- New vehicle prices rose just 0.1% and used car and truck prices fell 0.7%. Compared to a year ago, new vehicle prices are unchanged and used car and truck prices have risen just 0.6%.
- A good sign is that nearly a third of the weighted CPI had year-over-year inflation lower than 2% in March.
- For the first three months of 2025, the CPI increased at a 2.6% rate, down from 3.5% during the last three months of 2024. Core prices over the past 3 months are up at a 3.0% rate, slightly lower than the 3.1% annualized rate during the last quarter of 2024.
