--- title: Inflation Cools More Than Expected. What Does It Mean for Interest Rates and the Stock Market? description: New U.S. Labor Department data pegs the March 2023 inflation rate at 5%, which could majorly impact interest rates and the stock market. authors: - name: Adam Hardy role: Lead Data Reporter url: https://money.com/author/adam-hardy/ bio: Adam Hardy is a lead data journalist at Money, where he frequently reports on financial barriers that affect low-income Americans. Adam’s work has also appeared in Business Insider, Forbes, Nasdaq, The Penny Hoarder, Yahoo! Finance and more than a dozen local and regional newspapers. education: University of South Florida, BA, Magazine Journalism at_money_since: 2021 articles: 501 covers: - Economy and Politics - Banking - Business - Career Advice - Credit - Credit Cards - Debt - Education - Health and Wellness - Housing - Identity Theft - Insurance - Investing - Lifestyle - Loans - Mortgages - Personal Finance - Pets - Professional Services - Retirement - Shopping - Taxes - Technology also_seen_in: - The Penny Hoarder - Forbes Advisor - Creative Loafing - The New York Times - The Washington Post - Bloomberg - Harvard Law School - The Federal Register - National Consumer Law Center - CBS News - Becker's Hospital Review - Business Insider - Mother Jones - The Week - Fortune - The Philadelphia Inquirer - National Association of Student Financial Aid Administrators (NAFSAA) - Education Advisory Board (EAB) - The Institute for College Access & Success (TICAS) - This Morning with Gordon Deal - Empower - Reddit social: - https://www.x.com/hardyjournalism - https://www.linkedin.com/in/hardyjournalism/ editors: - name: Julia Glum role: Managing Editor url: https://money.com/author/julia-glum/ bio: Julia Glum joined Money in 2018 and specializes in covering financial trends that affect everyday Americans' wallets. She also writes Dollar Scholar, a weekly newsletter that teaches young adults how to navigate the messy world of money. education: University of Florida at_money_since: 2018 articles: 453 covers: - Economy and Politics - Banking - Business - Career Advice - Credit - Credit Cards - Debt - Education - Health and Wellness - Housing - Identity Theft - Insurance - Investing - Lifestyle - Loans - Mortgages - Personal Finance - Professional Services - Retirement - Shopping - Taxes - Technology also_seen_in: - Newsweek - International Business Times - CBS News - Good Morning America - WUSA9 - Pix 11 - The New York Times - Mashable - The Washington Post - CNBC - Politico social: - https://x.com/superjulia - https://www.linkedin.com/in/julia-glum published: '2023-04-12T16:51:44.000Z' modified: '2024-01-10T14:42:30.000Z' section: Economy and Politics tags: - News word_count: 661 canonical: https://money.com/march-2023-inflation-interest-rates-market/ type: NewsArticle source: structured-blocks --- > **Disclosure:** We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. [Learn more](https://money.com/page/disclaimer/). ![Woman at a grocery store shopping for eggs](https://img.money.com/2023/04/News-2023-Latest-Inflation-Numbers.jpg) New data shows inflation is showing signs of cooling, though prices remain elevated starkly above levels the Federal Reserve prefers to see. In March, inflation rose 5% from the year prior, the U.S. Labor Department [reported](https://www.bls.gov/news.release/cpi.nr0.htm) Wednesday, coming in a hair lower than the 5.1% prediction from many financial firms. Compared to the month before, prices increased 0.1%. "This number was a little bit better than what markets were thinking,” Jason Furman, an economics professor at Harvard University, said during a panel hosted by the Brookings Institution Wednesday. Inflation continues to fall from its peak of [9.1% last summer](https://money.com/inflation-june-2022-cheaper-prices/), and the March report belies a big dip in inflation compared to February’s report, which pegged [annual price growth at 6%](https://money.com/february-2023-inflation-prices-climbing/). However, a closer look suggests it may be too soon to celebrate. Furman noted that the big picture isn’t as cheery when it comes to core inflation. So-called “core inflation” — the Fed’s preferred measure of consumer prices that strips out the volatile costs of energy and food — has outpaced the overall inflation rate for the first time since 2020. In March, the annual core inflation rate was 5.6%, compared to the headline inflation rate of 5%. A key reason for this switch is that the overall inflation rate, which includes energy prices, is being compared to March 2022, just after Russia invaded Ukraine, [sending oil prices through the roof](https://money.com/gas-prices-near-record-high-2022/). But the new data still has major implications for the U.S. central banking system's battle to bring down prices. ## Where prices are rising and falling - The Labor Department said housing costs, which rose 0.6% from February, were “by far the largest contributor” to core inflation. The annual inflation rate for shelter was 8.2%. - Food costs — in particular, those for groceries — are finally starting to cool off. “That is by far and away the best news we’ve seen since 2020, when food prices started to take off,” Wendy Edelberg, a senior economic studies fellow at the Brookings Institution, said during the panel. - Overall, food inflation was flat compared to February. In other words, its monthly inflation rate was zero. [Grocery prices](https://money.com/saving-money-on-groceries-strategies/) fell 0.3% from February, though the costs of dining out ticked up 0.6%. However, compared to March 2022, food prices were up 8.5% for the year. - Energy prices are down sharply from March 2022, falling 6.4% over the year. Specifically, [gas prices](https://money.com/gas-prices-rise-spring-2023/) plummeted 17.4%. Again, these large annual price drops are compared to historically high energy costs last year. That said, energy and gas costs dipped notably from February, a drop of 3.5% and 4.6% respectively. ## What’s next While headline inflation came in slightly cooler than expected, [Wall Street](https://money.com/will-fed-cut-interest-rates-soon/) is largely expecting the Fed to continue its fight against inflation. - “Though inflation has moderated, the March consumer price data keeps a 25 \[basis-point\] [rate hike](https://money.com/banking-crisis-help-inflation/) by the Fed clearly on the table for May,” Ryan Sweet, chief U.S. economist at Oxford Economics, wrote in commentary shared with Money. - Oxford Economics predicts the Fed to raise rates by another 25 basis points in June as well, before pausing for the remainder of the year. This would put the target federal funds rate at 5.25% to 5.5% by June. (For comparison, in May 2022, the rate was 0.75% to 1%.) - The Federal Reserve will ultimately decide its next move at the Federal Open Market Committee (FOMC) meeting starting May 2. - The [markets](https://money.com/second-quarter-stock-market-outlook-2023/) are having mixed reactions to the Labor Department’s cooler-than-expected report. The Dow Jones Industrial Average rose about 10 points, while the S&P 500 dipped 0.1% Wednesday morning. “All that says to me is that the Fed still has [more to do](https://money.com/weekly-stock-market-outlook/),” Edelberg said. “And that’s OK. That’s how monetary policy works.” [The 7 Most Popular Ways People Are Saving Money on Groceries Now](https://money.com/saving-money-on-groceries-strategies/) [Should You Invest in CDs Now? Time May Be Running Out to Lock in a High APY](https://money.com/invest-cds-high-apy/) [Here's How Much Your Home Insurance Will Rise This Year, According to a New Forecast](https://money.com/home-insurance-costs-rise-2023-forecast/) ```json { "@context": "https://schema.org", "@graph": [ { "@type": "BreadcrumbList", "@id": "https://money.com/march-2023-inflation-interest-rates-market/#breadcrumb", "itemListElement": [ { "@type": "ListItem", "position": 1, "name": "Home", "item": "https://money.com" }, { "@type": "ListItem", "position": 2, "name": "Economy and Politics", "item": "https://money.com/economy-and-politics/" }, { "@type": "ListItem", "position": 3, "name": "Inflation", "item": "https://money.com/inflation/" }, { "@type": "ListItem", "position": 4, "name": "Inflation Cools More Than Expected. 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