Filed under: Economic Indicators, Gas Prices, GDP, Inflation, Economy
WASHINGTON -- U.S. consumer prices increased for a second straight month in March on rising gasoline and shelter costs, a sign of some inflation that should keep the Federal Reserve on course to start raising interest rates this year.
March's broad-based price gains bolster the U.S. central bank's long-held view that inflation will gradually move towards its 2 percent target as the dampening effect of lower energy prices fades.
"The data should allay the disinflation concerns that predominated earlier this year and, on the margin, increase the Fed's confidence that inflation will eventually move toward its target," said Michelle Girard, chief economist at RBS in Stamford, Connecticut.
The Labor Department said Friday its Consumer Price Index increased 0.2 percent last month after a similar gain in February. In the 12 months through March, the CPI slipped 0.1 percent after being unchanged in February.
The so-called core CPI, which strips out food and energy costs, increased 0.2 percent in March after a similar rise in February. In the 12 months through March, the core CPI rose 1.8 percent, the largest increase since October.
The Fed has kept overnight interest rates near zero since December 2008, but a number of officials have said a rate hike will likely be considered at the June policy-setting meeting.
But a recent raft of weak economic data, including the March nonfarm payrolls report, has left many economists with the belief that monetary policy tightening won't happen before September.
But the economy appears set to rebound from a soft patch in the first quarter. In a separate report, the University of Michigan said its consumer sentiment index jumped to 95.9 this month from a reading of 93 in March.
That bodes well for consumer spending and the overall economy, which stumbled at the start of the year under the weight of a harsh winter, a resurgent dollar, weaker global growth and a now-resolved labor dispute at West Coast ports.
The dollar rose marginally against a basket of currencies, while prices for U.S. government debt were slightly weaker. U.S. stocks fell sharply.
Dollar Impact
The rise in inflation, however, may be limited by the strong dollar, which has gained 13 percent against the currencies of the United States' main trading partners since last June.
Economists estimate the dollar could shave half a percentage point off inflation and economic growth this year. Firming wage growth, however, could mitigate the dollar's impact on inflation.
"But if the core rate is that close to target when it is being constrained by the indirect impact of lower energy prices and the stronger dollar, how high could it get when those transitory effects fade next year?" said Paul Ashworth, chief U.S. economist at Capital Economics in New York.
Last month, gasoline prices rose 3.9 percent, the largest gain since February 2013, after increasing 2.4 percent in February. Food prices slipped 0.2 percent last month, the biggest drop since May 2013.
Elsewhere, shelter costs rose 0.3 percent. That, together with higher energy prices, accounted for much of the gain in the CPI last month.
Further gains in the cost of shelter are likely in the months ahead, given rising demand for rental accommodation.
There were increases in prices of new motor vehicles, used cars and trucks and medical care services. Prices for apparel items and household furnishings and operations also rose. Airline fares fell 1.7 percent.
