Inflation Update: March 2021

Inflation Update: March 2021

The latest data from the Bureau of Labor Statistics shows that the Consumer Price Index (CPI) increased by 0.5% in March on a month-over-month basis, after rising 0.4% in February. The CPI measures the average change in prices paid by urban consumers for a basket of goods and services.

On a year-over-year basis, the CPI rose 4.3% in March, down from 4.7% in February. This is the lowest annual inflation rate since November 2020, when it was 3.8%. The decline in the annual inflation rate was mainly driven by a sharp drop in gasoline prices, which fell 9.1% in March after surging 18.4% in February. Gasoline prices are still 22.5% higher than a year ago, but they have moderated from the peak reached in January.

The main factors that pushed up the core inflation rate in March were mortgage interest and rent, which increased by 0.6% and 0.3%, respectively. Mortgage interest costs are influenced by changes in interest rates, which have risen recently due to expectations of stronger economic growth and higher inflation. Rent costs reflect the supply and demand conditions in the housing market, which have been tight due to low inventory and high demand.

On the other hand, home price increases have slowed down in recent months, according to the Case-Shiller Home Price Index, which measures the change in prices of single-family homes across 20 major metropolitan areas. The index rose 11.1% year-over-year in January, down from 11.4% in December and 11.6% in November. The slowdown in home price appreciation may reflect some cooling off of demand as well as some increase in supply as more homeowners decide to sell their properties.

Food prices increased by 0.1% in March on a month-over-month basis, after rising 0.2% in February. On a year-over-year basis, food prices rose 3.5% in March, unchanged from February. Food prices have been affected by various factors related to the COVID-19 pandemic, such as supply chain disruptions, labor shortages, increased demand for groceries and reduced demand for restaurant meals.

Within the food category, grocery prices increased by 0.1% in March on a month-over-month basis, after rising 0.3% in February. On a year-over-year basis, grocery prices rose 9.7% in March, up from 9.6% in February. This is the highest annual grocery inflation rate since June 2020, when it was 10%. Grocery prices have been driven up by higher costs of meat, poultry, fish and eggs (+5%), dairy products (+3%), cereals and bakery products (+2%) and nonalcoholic beverages (+2%).

Fresh fruits and vegetables prices decreased by 0.4% in March on a month-over-month basis, after rising 1.2% in February. On a year-over-year basis, fresh fruits and vegetables prices rose 8.6% in March, down from 9% in February. Fresh fruits prices increased by 7.1% year-over-year in March, while fresh vegetables prices increased by 10.1%. Fresh produce prices are influenced by seasonal factors as well as weather conditions that affect crop yields and quality.

In summary, inflation was up slightly in March on a monthly basis but down slightly on an annual basis due to lower gasoline prices. Core inflation was also up slightly on both a monthly and an annual basis due to higher mortgage interest and rent costs. Food prices were stable on a monthly basis but still high on an annual basis due to higher grocery prices and fresh produce prices.