Prices Probably Rose at a Slower Pace: U.S. Economy Preview

The cost of living in the U.S. probably rose at a slower pace in March as increases in energy expenses subsided, economists said before a report this week.

Consumer prices advanced 0.3 percent after climbing 0.4 percent in February, according to the median of 58 estimates in a Bloomberg News survey ahead of the Labor Department’s April 13 release. Other figures may show prices paid by producers also grew more slowly and that the nation’s trade deficit was little changed from the widest gap since October 2008.

An economic expansion that probably slowed at the beginning of the year may be encouraging companies to hold the line on prices. Limited pricing power would enable Federal Reserve policy makers to keep interest rates near zero to spur the pace of the economic recovery and boost employment.

“With growth barely managing to keep pace with trend, underlying inflation should remain modest this year,” Michael Hanson, an economist at Bank of America Corp. in New York, said in an April 5 research note to clients. “The main risk to the inflation forecast remains a sharp increase in oil prices.”

Energy costs may retreat following crude oil prices fell after peaking in February at the highest level since April 2011. Crude oil for May delivery dropped $4.05 to $102.80 per barrel by the end of last month. Natural gas is near its lowest price since 2002.

The Fed said after last month’s policy meeting that the jump in energy costs will probably be short-lived.

“The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate,” the Federal Open Market Committee said in the minutes of its March 13 meeting.

Core CPI

The Labor Department’s inflation report may also show consumer prices excluding food and fuel rose 0.2 percent last month after a gain of 0.1 percent in February, the Bloomberg survey median showed. Compared with the same month last year, retail prices are projected to increase 2.2 percent, matching February’s 12-month gain.

“We are actually seeing inflation moderate in the first quarter,” Rick Dreiling, chief executive officer of Goodlettsville, Tennessee-based Dollar General Corp. said in a March 22 call with analysts. Prices have increased about 1 percent in the first quarter, about half of the rate in the first three months of 2011, he said.

Wholesale Prices

The producer price index probably rose 0.3 percent last month after a 0.4 percent gain in February, economists forecast ahead of the April 12 Labor Department report.

Fed officials have indicated they will probably hold off on more monetary accommodation unless prices rise more slowly than their 2 percent target or the economic expansion falters, according to the minutes of their March 13 meeting released last week. Their preferred price gauge, which is issued by the Commerce Department and is tied to consumer spending, rose 2.3 percent in the year ended in February.

The policy makers may reiterate their views on inflation this week when they discuss their economic outlook. Vice Chairman Janet Yellen will speak in New York on April 11, and William C. Dudley, president of the Federal Reserve Bank of New York, will speak in Syracuse the next day. Chairman Ben S. Bernanke is scheduled to discuss financial stability on April 9.

The trade deficit was probably little changed at $51.7 billion in February after $52.6 billion a month earlier, according to the median estimate from economists ahead of the April 12 report. Slower global growth may limit imports and export, economists said.

                        Bloomberg Survey

==============================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
==============================================================
Import Prices MOM%        4/11     March      0.4%      0.9%
Import Prices YOY%        4/11     March      5.5%      3.4%
Initial Claims ,000’s     4/12     7-Apr      357       357
Trade Balance $ Blns      4/12      Feb.     -52.6     -51.7
PPI  MOM%                 4/12     March      0.4%      0.3%
Core PPI MOM%             4/12     March      0.2%      0.2%
PPI  YOY%                 4/12     March      3.3%      3.1%
Core PPI YOY%             4/12     March      3.0%      2.8%
CPI  MOM%                 4/13     March      0.4%      0.3%
Core CPI MOM%             4/13     March      0.1%      0.2%
CPI  YOY%                 4/13     March      2.9%      2.7%
Core CPI YOY%             4/13     March      2.2%      2.2%
U of Mich Conf. Index     4/13    April P     76.2      76.5
==============================================================

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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