In February, both the overall and core CPI rose just 0.2 percent, bringing their respective year-over-year increases to 2.8 percent and 3.1 percent. We are likely to see a somewhat worse picture in March in both measures. Anomalous factors that held down inflation in February are not likely to be repeated in the March data.

Food Prices Will Rise More Rapidly

The index for store-bought food was unchanged in February. This followed three months of rapid price increases, although the index is still up only 1.9 percent for the year. By contrast, the final demand index for food in the Producer Price Index (PPI) is up 5.9 percent over the last year. It rose 1.0 percent in January and 1.7 percent in February. This sort of gap between PPI measure of food inflation and the CPI measure would imply an extraordinary compression of profit margins at the retail level. Since that seems implausible, it is likely that more of the cost pressure at the wholesale level will be showing up in the CPI.

The gap between wholesale inflation and the CPI is especially large for meat, dairy products, as well as coffee. The PPI for pork rose 10.4 percent over the last year, while the CPI index rose just 1.8 percent. The PPI index for dairy products rose 5.7 percent, while the CPI index rose 0.8 percent. For coffee, the PPi index is up 14.2 percent over the last year, while the CPI index is up 6.0 percent.

These indexes never move exactly in tandem, but these gaps are extraordinary. We should expect to see substantially more food inflation in March than the flat reading in February.

Energy Costs Likely to Again Show Modest Increases

The energy index in the CPI is likely to show a modest gain in March. Gas prices were reasonably stable in the month, which after seasonal adjustment will appear as a price decline. Natural gas prices at the wholesale level rose sharply relative to February, which may show up partially in the March data.

Rents Have Slowed to Pre-Pandemic Pace

Inflation in both rental indexes has now slowed to its pre-pandemic pace. The owners’ equivalent rent index rose 0.3 percent in the last three months. The rent proper index rose 0.3 percent in every month since July, except November, when it rose 0.2 percent. The year-over-year inflation in the two indexes has been 4.4 percent and 4.1 percent, respectively.

It is possible we will see some further slowing in these indexes. The indexes that track rent in units that come on the market, including the BLS New Tenant Index, continue to show lower inflation rates. At the least, rent will be a factor helping to keep inflation stable in the near term. Over the longer term, price increases from tariffs on lumber and other inputs, together with the loss of immigrant construction workers, may slow building and push inflation higher.

Airfares Likely to Rise

An anomalous factor holding inflation down in February was a 4.0 percent drop in airfares. We are unlikely to see another decline in airfares in March and may see the February drop partially reversed. The decline in airfares in February trimmed the monthly inflation rate by 0.04 percentage points and the core index by 0.05 percentage points.

Medical Care Services Will Show Moderate Inflation

After trailing other non-housing core services through most of 2023, inflation in medical care services has again been somewhat outpacing other components in the last year. It is likely we will again see inflation in this index close to 0.3 percent in March.

The index for hospital services has been consistently outpacing the rest of the medical services index, rising 3.8 percent over the last year compared to 3.0 percent for the index as a whole. In February, the hospital services index rose just 0.2 percent, but that followed a 0.9 percent increase in January. We will likely see somewhat more rapid inflation in this component in March.

New Car Prices Likely to Rise in March as People Look to Beat Tariffs

New vehicle sales picked up after the election, presumably because people were hoping to buy before the Trump administration’s tariffs kicked in. We have not seen much impact from these sales yet, but that could change in March. The index for new vehicles fell 0.1 percent in February and is down 0.3 percent year-over-year. We will likely see at least a modest increase in March.

The used vehicle index rose 0.9 percent in February. It is up 0.8 percent year-over-year. We should see another increase in the index this month, but this component is highly erratic, so the size is difficult to predict.

Car Insurance Inflation Likely to Rebound

The CPI index for vehicle insurance rose just 0.3 percent in February, well below its 11.1 percent rate over the last year. There will almost certainly be a faster rise in March. This is at least in part the result of weather disasters like the LA fires, which invariably destroyed a large number of cars and trucks. This raises expenses for insurers and ultimately leads to higher prices.

Mixed Inflation Picture Before the Tariffs

The March report will be the last one before the bulk of the Trump administration’s tariffs take effect. We are seeing some effects already in the economy, as there has been a surge in purchases of durable goods in anticipation of the tariffs. For the most part, this surge has not had a noticeable impact on the prices of the affected items. That will almost certainly change when the tariffs are actually in place.

It also will be worth monitoring prices in sectors where the Trump administration has explicitly rejected the Biden administration’s efforts at containing costs, such as cable and streaming services and prescription drugs. This could be another source of inflation that has not generally been reflected in most calculations.

In any case, the long stretch of the slowing of the pandemic inflation in the last two years of the Biden administration seems to be over. The question is how much the Trump administration policies will increase inflation.