Consumer inflation rose 0.1% in March per the Consumer Price Index (CPI), with this headline reading coming in just below estimates. On an annual basis, CPI fell sharply from 6% in February to 5% last month.

Core CPI, which strips out volatile food and energy prices, increased 0.4% while the annual reading rose from 5.5% to 5.6%. This notch higher is partly due to a small replacement figure from last March, which was removed from the rolling 12-month calculation. Readings from April through June 2022 are higher comparisons, meaning annual Core CPI should decline in upcoming reports if readings this spring are lower than last year.

In addition, the shelter index increased 8.2% over the last year, accounting for over 60% of the total increase in all items less food and energy per the Bureau of Labor Statistics. However, shelter costs have been declining in more real-time data. For example, Apartment List’s latest Rent Report showed that year-over-year rent growth decelerated to 2.6% in March, the lowest level since April 2021. Once these moderating shelter costs are reflected in the CPI data, they should add additional downside pressure to inflation.

What’s the bottom line? While annual inflation remains elevated at 5%, it has declined sharply from the 9.1% peak seen last June. Lower inflation typically helps both Mortgage Bonds and mortgage rates improve, so these signs of easing inflation are welcome.