Inflation in the US slowed again in March as the Federal Reserve's interest rates help to ease price pressures on households and businesses.
Data released by the Labour Department on Wednesday showed that the Consumer Price Index rose 0.1 per cent in March, down from a 0.4 per cent increase in February. Inflation slowed to 5 per cent on an annual basis.
March was the ninth straight month that inflation decreased in the US after peaking at 9.1 per cent in June 2022.
A Bloomberg survey of economists had estimated inflation would rise 0.2 per cent on a monthly basis and 5.2 per cent year-on-year.
Core inflation — which excludes food and energy — rose 0.4 per cent last month and 5.6 per cent on an annual basis, as expected.
Still, inflation is running well above the Fed's 2 per cent target and the labour market remains tight, with employers adding 236,000 jobs last month.
It adds further pressure on policymakers at the central bank who have acted aggressively in the last year against rising prices.
Last month's Personal Consumption Expenditures Price Index, the Fed's preferred inflation metric, also showed encouraging signs that inflation was cooling.
The Fed raised interest rates nine times since March 2022 from a near-zero rate to the current target range of 4.75 per cent to 5 per cent. In its latest 25-basis point increase last month, the central bank omitted the ominous words “ongoing increases”, signalling they could soon pause rate rises.
Wednesday's data “has now confirmed that the Fed doesn’t need to work as hard as they have, and the time has come to ease off on increasing the interest rate”, said Naeem Aslam, chief investment officer at Zaye Capital Markets.
Traders expect the Fed to announce another 25 bps increase when it next meets in May, CME's FedWatch Tool showed.
Meanwhile, minutes released by the Fed showed that some at the central bank considered pausing rates to assess how the recent banking crisis would affect monetary policy.
Fed Chairman Jerome Powell previously said that policymakers opted for a smaller rate increase last month because the tighter financial conditions caused by the recent bank collapses was a sort of interest rate increase in itself.
"Several participants noted ... they considered whether it would be appropriate to hold the target range steady at this meeting," the minutes read.
The minutes provided a closer look at the discussion those inside the central bank had days after it rescued depositors at Silicon Valley and Signature banks.
Policymakers had also reaffirmed the strength of the US banking system while also noting that the collapses were primarily caused by risk mismanagement.