Inflation was cooler than expected last month, with both the headline and core Consumer Price Index (CPI) readings falling short of forecasts. Headline CPI dipped 0.1% from the prior month, while the year-over-year figure softened from 2.8% to 2.4% – a decline driven largely by a sharp drop in gasoline prices.
Core CPI, which excludes volatile food and energy costs, inched up 0.1% month-over-month but eased to a 2.8% annual rate, down from 3.1% previously. This marked the lowest core inflation reading since March 2021.
Shelter costs remain the primary driver of ongoing inflationary pressures, accounting for 35% of the headline CPI and 44% of the core reading. While shelter costs were relatively favorable in March, this was largely due to a significant decline in lodging away from home, which coincides with reduced travel and other signs of economic slowdown.
What’s the bottom line? The cooler-than-expected inflation report would normally be welcomed news for the bond market, as lower inflation helps preserve the buying power of fixed investments like mortgage bonds. However, the March data preceded the imposition of new tariffs, which have continued to be the major market driver.
