U.S. inflation slows to two-year low, but core, services inflation remain stubbornly high

The financial markets are celebrating on Wednesday after the U.S. consumer price index (CPI) slowed to 5% in March, down from 6 percent in February. This also came in below the market estimate of 5.2% percent

Inflation has not been this low since May 2021.

The bad news?

Core inflation, which strips the volatile food and energy sectors, climbed to 5.6 percent in March.

Services inflation remained elevated at 7.3 percent, although it slowed from 7.6 percent.

Many essential items continued to trend higher on a year-over-year basis: bread (+15.2%), eggs (+36%), chicken (+6.5%), electricity (+10.2%), and transportation services (+13.9%).

With a recession back on the table, it appears that inflation will hit the two percent target rate next year.

However, this is going to be a situation much like in the 1980s and 1990s: Paul Volcker vanquished inflation, but by the late ’80s, inflation started to rise, creating an ebb-and-flow situation.