Inflation remains the stickiest of problems for the U.S. economy, with the March consumer price index coming in hotter than expected — the third straight month that prices have accelerated. Gasoline prices and rent contributed over half the monthly increase, the government said on Wednesday.

Prices in March rose 3.5% on an annual basis, higher than the 3.4% expected by economists polled by financial data services company FactSet. It also represents a jump from February's increase of 3.2% and January's bump of 3.1% on a year-over-year basis. 

The latest acceleration in prices complicates the picture for the Federal Reserve, which has been monitoring economic data to determine whether inflation is cool enough to allow it to cut interest rates. But inflation, which measures the rate of price changes in goods and services bought by consumers, has remained stubborn in 2024, stalling the progress made last year to bring down the annual growth rate to the Fed's goal of 2%.

"This marks the third consecutive strong reading and means that the stalled disinflationary narrative can no longer be called a blip," said Seema Shah, chief global strategist at Principal Asset Management, in an email.  

Shah added, "In fact, even if inflation were to cool next month to a more comfortable reading, there is likely sufficient caution within the Fed now to mean that a July cut may also be a stretch, by which point the U.S. election will begin to intrude with Fed decision making."

Stocks fell on the report, with S&P 500 down 45 points, or 0.9%, to 5,164.96. The Dow Jones Industrial Average slumped 1% while the tech-heavy Nasdaq slipped 0.9%.

What does this mean for the Federal Reserve?

The higher inflation measures threaten to torpedo the prospect of multiple interest rate cuts this year. Fed officials have made clear that with the economy healthy, they're in no rush to cut their benchmark rate despite their earlier projections that they would reduce rates three times this year.

At the start of 2024, Wall Street traders had projected that the Fed would cut its key rate up to six or seven times this year. In March, Fed officials signaled that they envisioned three rate cuts. But elevated inflation readings for January and February — along with signs that economic growth remains healthy — led several Fed officials to suggest that fewer rate cuts may occur this year.

On Thursday, a Federal Reserve official raised the possibility the central bank may not cut interest rates at all in 2024, deflating Wall Street's expectations that several reductions could be in store later this year. 

"If we continue to see inflation moving sideways, it would make me question whether we needed to do those rate cuts at all," said Federal Reserve Bank of Minneapolis President Neel Kashkari last week.

Where inflation is spiking

Gas prices surged 1.7% from February to March and clothing costs 0.7%. The average cost of auto insurance jumped 2.6% last month and is up a dramatic 22% from a year ago, partly reflecting purchases of higher-priced vehicles.

A report earlier this year found U.S. drivers are paying an average of $2,543 annually, or $212 per month, for car insurance — an increase of 26% from last year. Rates are also rising due to the impact of severe weather events, which have become more frequent due to climate change.

Grocery costs, though, were unchanged last month and are 2.2% higher than they were a year ago, providing some relief to consumers after the huge spikes in food prices in 2022 and early 2023.

The surge in inflation that followed the pandemic jacked up the cost of food, gas, rent and many other items. Though inflation has since plummeted from its peak of 9.1% in June 2022, average prices are still well above where they were before the pandemic.

—With reporting by the Associated Press.

In:
• Inflation

Aimee Picchi

Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.

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