In March 2024, US inflation (as measured by the CPI) surprised unfavourably for the third month in a row, with a higher-than-expected figure, this time on both the headline and the core measures. The rise in headline (year-on-year) inflation was somewhat larger than expected (+0.3 percentage points to 3.5%, thus returning to its highest level since last September) and core inflation remained stable (at 3.8%) against a slight expected decline.
Although Jerome Powell put the bad surprise of the January and February figures into perspective, inviting us to step back and look at the trend, this becomes more complicated with the March data because the slowdown, or even reversal, of the disinflation process is quite clear. If we take June 2023 as the reference point – headline inflation being then, at 3% y/y, at its lowest level for almost 2.5 years (March 2021) – core inflation lost only 1 percentage point in 9 months (from 4.8% to 3.8%) when it had lost nearly 2 pp in the previous 9 months (between September 2022 and June 2023). Headline inflation has risen by half a point since June 2023, after having lost 5 pp between September 2022 and June 2023: the decline in core and food inflation to a lesser extent in recent months has not been sufficient to offset the diminishing negative contribution of energy prices (which, moreover, became positive again in March).
When viewed in perspective, half a percentage point increase in headline inflation since June 2023 is not, at this stage, significant and does not fundamentally call into question the disinflation trajectory, especially since the slowdown of core disinflation can be attributed to a small number of components of the price index. Three items, excluding energy-related ones, stand out, with a contribution to inflation up between June 2023 and March 2024 (see exhibit 1): used cars (2% weight in the CPI), medical care services (6%) and motor vehicle insurance (3%). Since such a surge in the prices of the latter is unusual (+22.2% y/y in March 2024), it is conceivable that they will moderate in the future and that core inflation could resume falling a bit more rapidly.
This “last mile” of disinflation (from 3% to 2%) looks really uneasy to cover. This reinforces the possibility that the Fed may delay its first rate cut further. By contrast, on the Eurozone side, the ECB’s first cut in June tends to be confirmed, inflation here being lower and falling more (2.4% in March according to Eurostat’s flash estimate). At least in this respect, the Eurozone is doing better than the United States.
