The CPI edged up 0.1 percent in March from February and rose 5.0 percent year-over-year, a full percentage point less than in February, and below Econoday's consensus expectations of 0.3 percent and 5.2 percent, respectively. The core CPI, excluding food and energy, rose 0.4 percent on the month and 5.6 percent year-over-year, both in line with expectations.

The larger-than-expected decline of the headline index brought the 12-month rate to its lowest level since May 2021. This slowdown is a welcome development for the Federal Reserve, especially since Econoday's Consensus Divergence Index, at minus 34, is in a zone indicating the US economy has been appreciably weaker than expected, consistent with monetary policy building easing risk.

That being said, core readings tempered the overall picture as the monthly slowdown to 0.4 percent from 0.5 percent didn't translate into a 12-month easing. Rather, the core index rose faster than in February - 5.6 percent versus 5.5 percent. Although the acceleration was anticipated, it's a reminder that the fight to bring down inflation is far from over, which will keep the central bank vigilant.

Food and energy brought some relief, with food prices flat on the month after rising 0.4 percent in February, for a 12-month gain of 8.5 percent, the smallest advance since February 2022. Energy prices contracted 3.5 percent on the back of a 0.6 percent decline the previous month, for a 12-month drop of 6.4 percent, the first decline since January 2021.

Shelter was the largest positive contributor to the monthly increase in March, with prices up another 0.6 percent on the month and 8.2 percent from a year earlier, giving no respite to a rising trend that has been persisting since a low of 1.5 percent year-over-year in February 2021. Shelter accounted for more than 60 percent of the 12-month core CPI increase. Motor vehicle insurance, airline fares, household furnishings and operations, and new vehicles also pushed prices higher in March, while medical care and used cars and trucks brought some offset on the downside.

Finally, a positive in the report is a noticeable easing in what are still substantial pressures on non-housing services prices, an area of concern cited frequently by Jerome Powell and worth watching for in this afternoon's release of FOMC minutes from last month's meeting. Services less rent of shelter offer a barometer for non-housing services and this reading was unchanged in the month and down nearly a full percentage on the year to 6.1 percent. This extends a run of moderation and is the least elevated level since May last year.

Core prices in March are expected to rise an elevated 0.4 percent versus February's sharp and higher-than-expected increase of 0.5 percent. Overall prices are expected to rise 0.3 percent after February's 0.4 percent rise which was no higher than expectations. Annual rates, which in February were 6.0 percent overall and 5.5 percent for the core, are expected at 5.2 and 5.6 percent.

The CPI is a measure of the change in the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation for the consumer. Annual inflation is also closely watched.

The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group. The CPI-U is the more widely quoted of the two, although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W, because it has a longer history. Monthly variations between the two are slight.

The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas. The regional and city CPIs are often used in local contracts.

The Bureau of Labor Statistics also produces a chain-weighted index called the Chained CPI. This measures a variable basket of goods and services whereas the regular CPI-U and CPI-W measure a fixed basket of goods and services. The Chained CPI is similar to the personal consumption expenditure price index that is closely monitored by the Federal Reserve Board.

The consumer price index is the most widely followed monthly indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments.

If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation as you know the $100 will not be able to buy the same amount of goods and services a year from now. The CPI tells us that prices rose 4.2 percent in the U.S. over 2007. To recoup your purchasing power, you would have to charge 4.2 percent interest. You might want to add one or two percentage points to cover default and other risks, but inflation remains the key factor behind the interest rate you charge.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.