US consumer inflation dips in March on low fuel prices

A sharp drop in US fuel prices masked rising costs for shelter, food and medical care that could support Federal Reserve plans to raise interest rates this year and next
AFP

Washington (United States) (AFP) – US consumer inflation dipped in March amid plunging gasoline prices, but the annual rate rose, suggesting a long-awaited uptick in price pressures could be drawing near, the Labor Department reported Wednesday.

The sharp drop in fuel prices masked rising costs for shelter, food and medical care that could support Federal Reserve plans to raise interest rates this year and next.

Meanwhile, cell phone service — which had been blamed for the bafflingly low inflation last year — finally showed the uptick analysts had predicted.

And wage data showed rising hourly earnings for workers, which also could fuel inflation.

The Consumer Price Index, which tracks costs for household goods and services, slipped 0.1 percent compared to February, driven lower by a 4.9 percent decline in gasoline prices, according to the report.

Natural gas prices also fell 1.2 percent, and fuel oil dropped 0.7 percent in March.

The CPI drop surprised analysts who had predicted a 0.1 percent increase.

But excluding volatile food and fuel prices, “core” CPI rose 0.2 percent, matching the consensus forecast.

The fuel price slump was likely to be dismissed as noise, since economists have predicted the volatility in the spring months after seeing similar moves last year.

But more significant was the 12-month measure for CPI which jumped two tenths to 2.4 percent, the second straight increase and the highest rate since March of last year.

The core 12-month measure moved even faster, gaining three tenths of point to 2.1 percent after holding steady for three months, putting it at its highest level since February 2017.

– Prices rising as inflation falls –

Core CPI rose at by an even-faster 2.9 percent.

Mobile phone subscription prices  posted a 0.2 percent gain for March after falling the prior two months.

Ian Shepherdson of Pantheon Macroeconomics said the new signs of an upward trend meant the Fed was likely to raise rates a total four times this year rather than the three hikes currently forecast.

Most important, he wrote in a client note, “is whether this increase comes as a surprise to the public and materially raises peoples’ inflation expectations.”

“If that happens, policymakers will fear an adverse feedback loop into wage negotiations, just as unemployment approaches a 50-year low.”

Average hourly earnings posted the biggest gain since July 2016, rising 0.4 percent in March, following the 0.1% decline in February, according to a separate report.

Fed policymakers closely watch wages and prices to decide monetary policy, although they focus on a different inflation indicator, the Personal Consumption Expenditures price index.

But the CPI remains an important benchmark and the March price data could send jitters through Wall Street, where investors get skittish when faced with signs the Fed could raise interest rates more aggressively.

US stocks were down slightly in mid-morning trading, but seemed to be focused on geopolitical issues, including President Donald Trump’s threats of a possible strike against Syria.

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