Consumer Prices in U.S. Increased at a Slower Pace in March

The cost of living in the U.S. increased at a slower pace in March as the run-up in energy prices eased, supporting the view of some Federal Reserve policy makers that inflation will ebb.

The consumer-price index climbed 0.3 percent, matching the median forecast of economists surveyed by Bloomberg News, after increasing 0.4 percent the prior month, Labor Department data showed today in Washington. The so-called core measure, which excludes more volatile food and energy costs, rose 0.2 percent.

Companies like Levi Strauss & Co. and Jos. A. Bank Clothiers Inc. may find it difficult to keep raising prices as 12.7 million Americans remain unemployed, almost twice the number at the end of the last expansion. Less inflation would give the Fed room to keep interest rates near zero to spur the economic recovery and boost employment.

“Inflation is going to be slowly decelerating as the energy price impulse that we’ve seen starts to fade,” said Michael Carey, the chief economist for North America at Credit Agricole CIB in New York, who correctly forecast the rise in prices. “The Fed is in wait and see mode. Inflation is not driving policy. They are more concerned about economic growth and the labor market.”

Stock-index futures held earlier losses after the figures as China reported slower-than-expected economic growth. The contract on the Standard & Poor’s 500 Index maturing in June fell 0.6 percent to 1,377.6 at 8:32 a.m. in New York.

Survey Results

Estimates from the 80 economists surveyed ranged from increases of 0.1 percent to 0.5 percent.

Consumer prices increased 2.7 percent in the 12 months ended in March, the smallest 12-month gain in a year.

The gain in the core gauge followed a 0.1 percent increase in February and also matched the median forecast of economists surveyed. Core prices were up 2.3 percent for the last 12 months, compared with 2.2 percent for the 12 months ended in February.

A 1.3 percent jump in the cost of used cars and trucks, the biggest since December 2009, contributed to the increase in the core measure, as did increases in clothing and medical care.

Today’s report showed energy costs increased 0.9 percent from a month earlier after jumping 3.2 percent in February. Food costs increased 0.2 percent, reflecting broad-based gains.

The costs of rents rose 0.2 percent, matching the total gain in the core measure.

Fed’s View

Fed officials, who’ve said energy costs will probably subside, have indicated they will hold off on more monetary stimulus unless prices rise more slowly than their 2 percent target or the economic expansion falters, according to the minutes of their March 13 meeting. Their preferred price gauge, issued by the Commerce Department and tied to consumer spending, rose 2.3 percent in the year ended in February.

“We expect this moderation of overall inflation to resume later this year,” Federal Reserve Bank of New York President William C. Dudley said this week.

Fuel prices have already started to stabilize. The cost of a gallon of regular gasoline at the pump eased to $3.91 on April 11 from a 10-month high of $3.94 reached a week earlier, figures from AAA, the biggest U.S. auto group, show.

Fed Vice Chairman Janet Yellen endorsed the central bank’s “highly accommodative” policy this week, stating the Fed probably won’t meet its goal of full employment for years while inflation will remain in check.

Employment Concern

“I anticipate that we will fall far short in achieving our maximum employment objective, and I expect inflation to remain at or below” the Fed’s goal, Yellen said in a speech in New York. Economic growth “will be sufficient to lower unemployment only gradually from this point forward,” Yellen said.

While the economy has added an average of more than 180,000 jobs since October, weaker employment gains last month signal labor market progress could be slowing. The slack evidenced by an 8.2 percent unemployment rate might then limit the success companies like Levi Strauss have had passing the cost of more expensive raw materials onto consumers.

“We pushed prices fairly aggressively during 2011 and still haven’t been able to fully cover all the cotton price increases, but we’re probably to the end of our ability to push pricing much further,” Blake Jorgensen, chief financial officer of the San Francisco-based company, said in an April 10 conference call with analysts.

Pricing Power

Jos. A. Bank is in a similar situation.

“To date, we have been less successful in raising our out- the-door prices on some promotional product offerings” this year than last, R. Neal Black, president and chief executive officer at the Hampstead, Maryland-based retailer said on a March 29 conference call.

Paychecks are failing to keep up with inflation, which will further limit consumers’ ability to buy more expensive products, another Labor Department report showed today. Hourly earnings adjusted for prices dropped 0.1% in March, the third straight decline, and were down 0.6 percent over the past 12 months, today’s report showed.

A Labor Department report yesterday showed while prices were little changed in March. The cost of imported goods, reported April 11, rose 0.8 percent.

The CPI is the broadest of three price gauges because it includes goods and services. Almost 60 percent of the index covers prices consumers pay for services ranging from medical visits to airline fares, movie tickets and rents.

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

Enlarge image

Consumer Prices in U.S. Increased at a Slower Pace in March

Andrew Harrer/Bloomberg

Customers with flat-panel televisions in Falls Church, Virginia.

Customers with flat-panel televisions in Falls Church, Virginia. Photographer: Andrew Harrer/Bloomberg