September 28, 2020

U.S. Consumer Prices Up 0.5%, Pushed Mainly by Food and Gas

But while consumers are feeling the pinch at gas stations and grocery stores, economists emphasized that the March results were in line with the Federal Reserve’s view of the economy and should keep the policy-making board from raising its benchmark rate or ending its economic stimulus.

The Labor Department said that the Consumer Price Index rose 0.5 percent in March, matching a 0.5 percent rise in February. Gasoline and food prices accounted for almost three-quarters of the increase, but outside of those two areas, prices remained subdued. In the last 12 months, the index has increased 2.7 percent.

The core index, which excludes food and energy, rose 0.1 percent in March, compared with a 0.2 percent rise in February. The core index rose 1.2 percent in the last 12 months.

With a rise in food prices and gasoline now averaging $3.82 for a gallon of regular unleaded, inflationary pressures were likely to continue to affect household budgets in the short-term, economists said. “So if you don’t eat or drive a car, you are feeling little inflation,” the chief economist for PNC Financial Services, Stuart Hoffman, said.

Analysts had forecast an increase of 0.5 percent in the broader index and a 0.2 percent rise in the core index.

But underlying pressures as reflected in the core index are low.Mr. Hoffman and other economists said that the index was within the “comfort zone” of the Federal Reserve, whose policy-making board meets on April 26. As such, they said they did not expect the Fed to take any action on rates or its quantitative easing program, known as QE2, which is purchasing $600 billion in government securities.

“I think they will say the economy is on firmer footing,” Mr. Hoffman said. “At the end of the day they will reaffirm they are going to finish QE2.”

But he emphasized that the central bank would continue to be concerned about inflation expectations of consumers, who would demand higher wages, and businesses, which could post higher prices and perhaps cut spending.

The relatively slow increase of prices in the services sector, and the decline in apparel prices, were helping to offset price rises elsewhere, Dan Greenhaus, the chief economic strategist for Miller Tabak Company, said in a research note.

Friday’s report showed that prices for all types of gasoline rose 5.6 percent in March, compared with 4.7 percent in February. It was the ninth consecutive increase in the gas index. Food costs increased 0.8 percent in March, after they rose 0.6 percent in February, the biggest jump since September 2008.

Economists have been concerned that higher energy costs will constrain consumer spending, even though oil prices are expected to decline in the second half of the year. Consumers have also been coping with a trend of higher food costs, as bad weather has hit some agricultural commodities, including corn and wheat, while vegetable prices have risen because of cold weather in parts of the south. Cotton prices have also soared.

Paul Ballew, a former Federal Reserve economist and a senior vice president for Nationwide Insurance, said the Fed would be watching commodity prices over the coming months but would likely remain on the sidelines until 2012 as they gauge the sustainability of the recovery.

“You will start to see them talk about their exit strategy going forward,” he said.

Higher prices were also in focus in global economies. Higher consumer prices were reported Friday in India, Europe and China. In China, figures showed consumer prices rose 5.4 percent in March, up from February’s 4.9 percent. Inflation in the 17-nation euro region increased to an annualized rate of 2.7 percent from 2.4 percent in February, the European Union’s statistics office reported Friday.

Japan was highlighted in another economic report in the United States on Friday. A Federal Reserve report said industrial production grew 0.8 percent in March, above analysts forecasts of 0.6 percent and compared with a slight 0.1 percent rise in February. The report included a 0.7 percent rise in manufacturing output, especially for durables, and motor vehicles and parts.

But in the coming months, the sector could start to feel disruptions in supply caused by the March 11 natural and nuclear disasters in Japan, economists from Goldman Sachs wrote in a research report.In the United States, the report on consumer prices followed one on prices for wholesalers on Thursday. In that report, the Labor Department said higher energy costs accounted for almost all of the increase in the Producer Price Index, which was up 0.7 percent in March, when prices for a barrel of crude oil reached levels not seen since September 2008, partly as turmoil in the Middle East heightened perceptions that supplies could be disrupted.

Article source: http://feeds.nytimes.com/click.phdo?i=3597242bbb9614d7d74a7a73b9ec6a94

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