Headline inflation fell in March, but "core" prices rose more than expected. 

The latest consumer price index report from the BLS showed that in March, prices fell 0.1% over the prior year, but on a "core" basis, which excludes the more volatile cost of food and gas, prices rose 1.8%. 

Prices were expected to be flat over last year and rise 1.7% on a core basis. 

Compared to last month, prices rose 0.2%, below expectations for a 0.3% increase, and on a "core" basis prices rose 0.2%, in-line with expectations. 

A big mover in the report was the price of food, which fell 0.2% over the prior month, as the food at home sub-index fell 0.5%, the largest decline for this measure since April 2009. Energy prices rose 1.1% as gas prices rebounded. 

In a note to clients following the report, Ian Shepherdson at Pantheon Macro said, "In one line: Nothing alarming, but core inflation is not falling, and rents have real upside." 

Shepherdson added, "The 0.3% increase in [owners' equivalent rents] the biggest since Dec 13, in the component which alone accounts for 31% of the core is potentially a big deal ... The rental vacancy rate is at a 20-year low and falling; rents could easily move substantially to the upside, especially if wage gains pick up."

Here's Shepherdson's chart showing the uptick in OER.

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