Underlying Inflation Stays HotUnderlyingInflationStaysHot

US consumer prices rose at a slower pace in March but presented the Federal Reserve with a mixed bag of results, as underlying inflation proved to be more resilient. The consumer price index was up 5% year-over-year, decelerating from 6%, amid a drop in energy costs. Excluding volatile food and energy prices, core CPI ticked higher to 5.6% from 5.5% with sectors such as housing and transportation displaying signs of ongoing inflationary pressure. Meanwhile, wholesale prices—considered a predictor of consumer inflation—cooled in March, recording a 2.7% year-over-year gain versus 4.9% in February.

Policymakers at the Fed will parse the latest inflation data, in addition to retail sales coming on Friday, as they consider whether to raise interest rates again at their next meeting in May. Central bankers face a challenging task ahead in determining the extent of the fallout from the bank crisis and whether tighter lending conditions will meaningfully crimp economic activity. An IMF report this week lowered forecasts for global economic growth in 2023, warning that odds of a hard landing have “risen sharply” with “side effects” emerging from the sudden shift to higher rates. In its second-quarter outlook, PGIM Quantitative Solutions looks at monetary policy’s impact on financial markets and how potential downside risks will influence equity valuations.