RALEIGH – Headlines such as “cooler-than-expected” at CNBC and “US inflation fell in March for the ninth month in a row” at CNN look good, says N.C. State economist Dr. Mike Walden, but there’s a big caveat.

Food and energy costs were excluded. News on those fronts is not as good, and Walden sees the Federal Reserve not relaxing its fight against inflation. In other words, more interest rate hikes may be on the way.

“My conclusion is that if the details, rather than the headlines, are examined, the March inflation report was not as good as it appears,” Walden tells WRAL TechWire. “If the Fed does put more emphasis on the ‘all items less energy and food’ index, they will not see a reason to slow down their interest rate hikes.”

Mike Walden (NCSU photo)

The latest government report on inflation was published early Wednesday.

Here is how The Associated Press reported the news:

“U.S. consumer inflation eased in March, with less expensive gas and lower food prices providing some relief to households that have struggled under the weight of surging prices for nearly two years.

“The government said Wednesday that consumer prices rose just 0.1% from February to March, down from 0.4% from January to February and the smallest increase since December.”

A differing view

However, Walden differs in his assessment.

“This is a report where analysts will have different reactions based on what numbers they focus on.  The headline reaction will be that, year-over-year, the overall inflation rate dropped to 5% from its 6% level in February.  This is a strong reduction which brings us much closer to the Fed’s 2% goal.  Driving the improvement were major drops in some food prices as well as most energy prices.  Also, compared to February, the inflation index was up only 0.1%,” Walden explains.

“But after removing food and energy prices, the year-over-year inflation rate in March was 5.6%, modestly higher than in February.  The increase from February to March was 0.4%.   Many economists – including those at the Federal Reserve – put more emphasis on this “all items less energy and food” inflation index due to the volatility of food and energy prices – which can be impacted by both weather and geopolitical factors.  For example, the drop in gas prices in March is already being reversed in April as gas prices rise due to the announced supply cutbacks by OPEC.”

Walden expressed similar reports last month.

‘Core inflation’ worries

The Associated Press picked up on “core inflation” concerns.

“Excluding volatile food and energy costs, so-called core inflation remains stubbornly high. Core prices rose 0.4% from February to March and 5.6% from a year earlier. The Fed and many private economists regard core prices as a better measure of underlying inflation,” The AP notes.

So what will the Fed do?

“Fed officials have projected that after one additional quarter-point hike next month — which would raise their benchmark rate to about 5.1%, its highest point in 16 years — they will pause their hikes but leave their key rate elevated through 2023. But the officials have cautioned that they could raise rates still further if they deem it necessary to curb inflation,” The AP reports.