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Surging gas prices and high mortgages and rent contributed to a higher-than-expected increase in inflation in March, with consumer prices rising to a 3.5% increase for the 12 months ended in March. The path to lower inflation remains rocky, leading the Federal Reserve to possibly keep interest rates higher for longer. President Joe Biden acknowledged the need for more action to bring down inflation, particularly in housing and grocery prices. Inflation has been a significant concern during Biden’s presidency, impacting Americans’ finances and leading to low approval ratings for his handling of the economy.

The hotter-than-expected inflation data led to a sharp decline in US stocks, with the Dow falling by more than 500 points. The monthly inflation rate stayed flat compared to February, with gas and shelter costs driving more than half of the increase. Most major categories saw price increases, with economists anticipating a lower monthly increase and annual rate. The Federal Reserve aims to see progress on inflation before considering rate cuts, but the pace of price hikes slowed in 2023 and even started to reverse at the beginning of this year.

Core inflation, which excludes volatile categories like gas and food prices, rose unexpectedly, leading to concerns about persistent and stubborn underlying inflation trends. Services inflation, particularly in shelter costs, remains high despite private data showing cooling rent prices in the past year. Prices for medical care services and car insurance have also seen significant hikes. The current inflationary environment, coupled with ongoing supply chain pressures, makes it challenging for the Fed to bring inflation significantly lower this year.

Economists hope that lower market-rate rents and stable wages will eventually help bring down services inflation and overall inflation. While grocery prices have remained flat and restaurant prices have slowed, Americans are still feeling the impact of rising prices in services-related businesses and at the gas pump. There is a slow and gradual process expected for inflation to return to a more manageable level where consumers are less affected by rising prices. The stabilization of key areas like the grocery store is a positive sign, but consumers are likely to continue feeling the effects of the current price environment for some time.

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