Prices across the economy fell to an annual increase of 5 percent, down from 6 percent annually in February, according to data from the Labor Department.
On a monthly basis, prices rose 0.1 percent after rising 0.4 percent in February and 0.5 percent in January.
Economists had been expecting inflation to land at 5.1 percent annually and for it to have increased by 0.2 percentage points in March, so the numbers are better than expectations.
Grocery prices dropped substantially to an 8.4 percent annual increase from 10.2 percent last month. Food prices, which are some of the inflation that consumers feel most acutely, are still running much hotter than inflation overall.
Fruits and vegetables dropped 1.3 percent on the month while meats declined by 1.4 percent.
The “core” inflation, which removes the categories of food and energy, was up 5.6 percent annually and 0.4 percent since February, somewhat higher than the headline number.
Used car prices were way down, dropping 11.2 percent annually, while rent inflation also slowed. Owners equivalent rent and rent proper both increased 0.5 percent, down from 0.7 percent and 0.8 percent.
Inflation has been coming down since the middle of last year when it topped out at 9.1 percent in June following a quantitative tightening program by the Federal Reserve.
The Fed has raised interest rates nine times in a row since last March in the fastest tightening cycle since the last time inflation spiked during the Nixon administration.
But Fed officials have been sending different signals about what the U.S. central bank should do next.
“I think that at moments of financial stress like this, the right monetary policy is really caution and watchfulness and prudence,” Chicago Fed President Austan Goolsbee said Tuesday, echoing many economists who have been calling for the Fed to take a break on rate hikes.
New York Fed President John Williams said Tuesday in an interview with Yahoo Finance that the bank still has more work to do to bring down prices and that “inflation is still very high.”
“Jobs growth is actually quite strong still,” he said. “We are seeing some slowing in the demand for labor. But the demand for labor is still very strong.”
The Fed aims to cool inflation through the labor market because wages constitute the largest chunk of prices, along with input costs and markups. Wage growth and profit margins have been falling, but inflation has generally outpaced wage growth during the recovery of the pandemic, with higher profits keeping prices higher for longer.
That’s not true for the lowest-earning workers, however. Wages on the low end of the spectrum have actually been outpacing inflation and delivering workers a higher real wage.
Some economists have labeled the current inflation a “sellers’ inflation” to distinguish it from the “wage-price spiral” inflation that took place in the 1970s and resulted in wage and price freezes.
Wednesday’s lower price means that real average hourly earnings increased 0.2 percent in March.
Real average hourly earnings have decreased 0.7 percent since last year.
“The change in real average hourly earnings combined with a decrease of 0.9 percent in the average workweek resulted in a 1.6-percent decrease in real average weekly earnings over the period,” the Labor Department’s Bureau of Labor Statistics wrote Wednesday.
Updated at 9:26 a.m.