Headline inflation in the US rose less than expected in March, while core price growth remained elevated, data released Wednesday showed.

The all-items gauge increased 0.1% last month, the smallest gain since December, but the 0.4% MoM increase on the core index suggested underlying price pressures persist.

Do note: The unrounded headline print was 0.053%. In other words: Very nearly unchanged. The range of estimates was 0.1% to 0.4%. The unrounded core print was 0.385%, still double (and then some) the monthly rate needed for core to come back down near 2% over time.

Markets were likely to interpret that combination as a constructive development. I wouldn’t necessary argue with that assessment, but I’d be remiss not to reiterate that core inflation isn’t moderating enough.

For core, the monthly pace is still consistent with the recent average, and when measured on a 12-month basis, it’s rising again, albeit just by a tick.

Shelter was “by far” the largest contributor to the monthly all-items increase, the government remarked. Ongoing pressure in shelter components offset an across-the-board decline in major energy gauges.

The 4.6% drop in the gasoline index is backward-looking, and could reverse in the event OPEC+ succeeds in putting a floor under oil prices. The 3.5% MoM drop on the main energy gauge was the largest since August.

Notably, the food index was unchanged in March, and the food at home gauge posted its first MoM decline since late 2020. On a 12-month basis, grocery price inflation in the US fell into the single-digits.

Meanwhile, the electricity gauge likewise notched its first MoM drop in what seems like forever, and is very close to falling back below 10% on YoY basis as well.

Used vehicle prices notched yet another monthly decline, the ninth consecutive. The monthly pace of apparel inflation decelerated, and the YoY rate is now a tolerable 3.3%.

Shelter is still an issue, but even there, signs of moderation were perceptible. March’s 0.6% gain brought the YoY pace to 8.2%, another fresh “since 1982” high, but it nevertheless represented a downshift from February’s monthly rate. Rent of primary residence and OER also logged smaller monthly advances.

The Fed is counting on “pipeline disinflation” in housing, and Jerome Powell has repeatedly cited developments in new leases on that score. This is where I’m compelled to offer my obligatory note of caution: If house prices inflect higher again during the spring home-buying season, it could complicate the Fed’s efforts looking out six months or so assuming no additional moderation.

Most importantly on Wednesday, core services price growth stripping out shelter came down to 0.29% in March, a meaningful deceleration from February’s pace. The same measure excluding rent and OER was an uncomfortable 0.4%, but that too was cooler compared to February. From a higher-frequency perspective, headline and core are running 3.8% and 5.1% on a three-month annualized basis.

I’d expect market pricing for the May FOMC meeting to come off a bit on the heels of Wednesday’s inflation data, but the figures weren’t decisive enough to tip the odds in favor of a pause. A final hike next month is still very likely. That said, another few CPI reports like this one combined with additional evidence of labor market normalization and any signs of consumer retrenchment will embolden back-half rate cut bets.