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Gas and grocery prices dropped, but overall inflation stayed high in March


The request for price check on aisle four brought some good news for a change. Grocery prices fell last month for the first time in 2 1/2 years. Gasoline prices were also down in March. Those were some of the highlights from the government's latest inflation snapshot. NPR's Scott Horsley joins us now with details on the report. Hey, Scott.

SUMMERS: Hi, Juana.

SUMMERS: All right. So this was a little better than forecasters had expected. Any more details about what exactly is going on here?

SCOTT HORSLEY, BYLINE: Let's start with those supermarket savings. You know, grocery prices had been on a tear, really ever since the start of the pandemic when people suddenly had to eat all their meals at home. Last month saw the first actual decline in grocery prices since September of 2020. Now, it wasn't a huge drop, three-tenths of 1%, but some of the priciest items saw a bigger break, including eggs. Egg prices, as you know, were an inflationary poster child earlier this year when avian flu knocked out a lot of laying hens. That has started to turn around, though, and egg prices plunged nearly 11% last month. That's a relief for Taylor Marx, who lives in Rowlett, Texas.

TAYLOR MARX: When I work from home, I eat them every day for breakfast, so I eat a lot of eggs.

HORSLEY: Other customers have also taken notice of the falling prices. Tom Charley, whose family runs a small chain of supermarkets in the Pittsburgh area, says he's now selling four times as many eggs as he was earlier this year when the price topped out at $5 a dozen. By the way, Juana, ham prices also dropped about 5% last month. So you can definitely save some green on eggs and ham.

SUMMERS: Oh, gosh. All right, Scott, what is happening to overall inflation?

HORSLEY: Annual inflation was 5% in March. That's the lowest it's been in almost two years, way down from last summer when inflation hit a four-decade high of just over 9%. But it's still a lot higher than Americans were used to back before the pandemic and before Russia's invasion of Ukraine. Taylor Marx says even though she is glad to see gas and grocery prices coming down, she still feels squeezed by the rising cost of living.

MARX: Even when my take-home pay goes up a little bit, with everything else rising, too, it just doesn't feel like I truly got a little bit of a raise.

HORSLEY: If you strip out food and energy prices, which tend to bounce around a lot, so-called core inflation is still stubbornly high, 5.6% over the last 12 months.

SUMMERS: OK. And what's keeping those prices climbing?

HORSLEY: One of the biggest drivers of inflation last month was the cost of housing. But there is some good news there. Housing costs are not climbing as fast as they were, and they're expected to cool off further as the year goes on. What inflation watchdogs are really worried about now is the price of services for things like travel and entertainment. Airfares, for example, jumped 4% last month. Hotel rooms jumped more than 3%. Mary Daly, who leads the Federal Reserve Bank in San Francisco, says people spend a big chunk of their money on services. And until those prices start to come down, it's going to be hard to get overall inflation under control.

MARY DALY: We need to see that coming down to feel confident that we're on our path to 2%. What I'm looking at today, I say, oh, the economy is making the adjustments I would like it to make, but we're not there yet.

HORSLEY: Now, there is some encouraging news. One big factor in the cost of services is wages because, of course, it takes workers to deliver services. And we have seen some cooling in wage growth in recent months. So over time, that should take some of the pressure off services prices.

SUMMERS: Scott, how does the Fed plan to address inflation as it's coming down?

HORSLEY: Fed officials are widely expected to raise interest rates by another quarter percentage point when they meet next month. They've signaled, though, that could be their last rate hike for a while. That's because the central bank is keeping a close eye on bank lending, which has slowed sharply after the collapse of those two big regional banks last month. A slowdown in bank lending acts kind of like an additional interest rate hike, putting the brakes on the economy and maybe helping to curb these rising prices.

SUMMERS: NPR's Scott Horsley. Thank you, Scott.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.