Inflation in the Twin Cities eased considerably last month as price increases in the region continued to cool faster than in the nation as a whole.

The consumer price index, a closely-watched measure of inflation, rose 3.4% in March for the Minneapolis-St. Paul region, the lowest year-over-year increase in two years and down from 5.1% in January, according to data the U.S. Bureau of Labor Statistics released Wednesday.

Lower energy prices, including a 15% decrease in gas prices compared to a year ago, helped drive the improvement.

At the same time, food prices continued to climb, though at a slower pace. That category in the Twin Cities rose 11.3% in March compared to a year ago, down from 12.2% in January.

The Twin Cities numbers came in lower than Tyler Schipper, associate professor of economics at the University of St. Thomas, expected.

"I was pleasantly surprised by this," he said. "I can also see the pushback from that person at the grocery store that says, 'My cup of English Breakfast tea is still more expensive than it was. I'm not seeing this yet.'"

He noted lower inflation doesn't mean prices are returning to what they were a year ago, only that they are no longer rising as fast as in recent months.

"You're not going to go to the grocery store and see apples be the price that they were a year ago," he said. "It's just that the higher price of apples will be the new normal, and we don't expect it to continue to increase as rapidly."

Overall U.S. inflation also moderated last month, but not by as much. It stepped down to 5% in March from 6% in February. (The Twin Cities' consumer price index comes out every other month, while the U.S. data is reported monthly.)

Still, price increases both locally and nationwide remain above the Federal Reserve's goal of 2%. The Fed has aggressively hiked interest rates in the past year in order to bring down inflation. It will make its next rate decision in May.

The Twin Cities' rate last month of 3.4% was the second-lowest inflation reading among the dozen or so metro areas for which the bureau reported a consumer price index. Only urban Hawaii came in slightly lower.

Other regions that came in higher included Washington D.C. at 3.7%, Chicago at 4.4%, Dallas at 5.8% and Tampa at 7.7%.

Schipper pointed to a faster moderation in housing prices, which make up a big chunk of the CPI, as a big factor in why the Twin Cities is faring better than other major metro areas.

Twin Cities' shelter prices, which largely reflect rent, rose 3.2% in March compared to 8.2% for the nation overall.

Schipper said that's also likely why "core inflation" — another metric policymakers monitor which strips out more volatile food and energy prices — went up for the country last month while it slightly decreased for the Twin Cities.

Since jumping to a record high of 8.7% in May 2022, inflation in the Twin Cities has steadily declined. U.S. inflation peaked last June at 9.1%.

Inflation jumped to the highest rate in four decades last year because of a combination of supply chain bottlenecks and higher consumer demand coming out of the pandemic.

In addition, gas prices spiked last spring and summer following the Russian invasion of Ukraine, which led to major disruptions in the oil sector. Gas prices in Minnesota hit a record high of $4.75 in June 2022 and then fell to a recent low of $2.95 in December.

Current gas prices are down nearly 40 cents from a year ago. The average price of a gallon of regular unleaded in the state was $3.47 Wednesday, according to AAA.

However, gas prices have risen since the latest inflation report because of rising demand and oil producers' recent surprising decision to cut production.

"I would expect they will continue to move higher," Gene LaDoucer, regional spokesperson for AAA.

Gas prices could increase another 15 to 20 cents between now and Memorial Day, he said.

"But at this time, there's no reason to believe we'll approach those record levels we saw last summer," he added.