Accelerating Inflation Adds to Signs U.S. Improving

Photographer: Victor J. Blue

A customer shops at a Whole Foods Market Inc. store in New York. financial markets. Close

A customer shops at a Whole Foods Market Inc. store in New York. financial markets.

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Photographer: Victor J. Blue

A customer shops at a Whole Foods Market Inc. store in New York. financial markets.

Consumer prices accelerated in March as Americans paid a bit more for food and rent, adding to signs that demand is improving in the world’s largest economy.

The consumer-price index climbed 0.2 percent after increasing 0.1 percent in February, a Labor Department report showed today in Washington. Over the past year, costs rose 1.5 percent following a 1.1 percent gain in February that was the smallest in four months.

Rents may continue to climb as more households, who are just starting to recover from the collapse in home prices, forgo ownership and instead turn to leasing properties. Sustained gains in sales would give companies pricing power, easing Federal Reserve concerns that inflation remains too far below its 2 percent goal.

“The overall picture is that inflation has stopped falling and is on a gradual uptrend,” said Thomas Costerg, an economist at Standard Chartered Plc in New York, who correctly projected the gain in CPI. “To some extent, today’s numbers relieve fears about the U.S. slipping into deflation,” or a prolonged drop in prices that hurts borrowers and profits.

The median forecast of 82 economists surveyed by Bloomberg called for a 0.1 percent rise. Estimates ranged from unchanged to a 0.4 percent gain.

Photographer: Patrick T. Fallon/Bloomberg

Americans paid a bit more for food and rent in March as consumer prices accelerated. Close

Americans paid a bit more for food and rent in March as consumer prices accelerated.

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Photographer: Patrick T. Fallon/Bloomberg

Americans paid a bit more for food and rent in March as consumer prices accelerated.

Stocks rose for a second day as earnings from Johnson & Johnson and Coca-Cola Co. overwhelmed concern about tension in Ukraine. The Standard & Poor’s 500 Index gained 0.7 percent to 1,842.98 at the close in New York.

China’s Economy

A report today showed China’s broadest measure of new credit fell 19 percent in March from a year earlier and money supply grew at the slowest pace on record, underscoring risks of a deeper slowdown as the government tries to curb financial dangers.

The U.S. inflation report showed the core gauge, which excludes volatile food and fuel costs, also rose 0.2 percent in March, the most since January 2013. Economists had forecast a 0.1 percent gain, according to the survey median.

The core CPI climbed 1.7 percent from March 2013 following a 1.6 percent advance in the prior 12 month period.

The Fed’s 2 percent goal is based on the Commerce Department’s inflation gauge that is tied to consumer spending. That measure climbed 0.9 percent in the 12 months through February.

Energy costs decreased 0.1 percent in March from a month earlier, today’s report showed. Food expenses climbed 0.4 percent, reflecting the biggest gain in pork prices since August 2012.

Rents Rise

About two-thirds of increase in core prices reflected rising rents. Owners-equivalent rent, one of the categories designed to track leasing costs, climbed 0.3 percent. Over the past 12 months, shelter costs, which also include hotel rates, increased 2.7 percent, the biggest gain since March 2008.

The gain in the cost of living squeezed paychecks. Hourly earnings adjusted for inflation dropped 0.3 percent, the biggest decrease since February 2013, after a 0.3 percent increase the prior month, a separate report from the Labor Department showed. They were up 0.5 percent over the past 12 months, following a 1.1 percent gain.

Department-store chains and clothing sellers may continue to hold the line on prices as they compete for customers.

Michael Nicholson, chief financial officer of women’s clothing chain Ann Inc. (ANN), which includes brands such as Ann Taylor and Loft, said on a March 14 earnings conference call that he sees “a very promotional environment in terms of the consumer” so far this year.

Pricing Focus

At Macy’s Inc. (M), “putting importance on value and pricing” is a theme across its consumers, Chief Financial Officer Karen Hoguet told analysts at a consumer conference on March 25. While that isn’t new for the department-store chain, “it’s something we will continue to deal with going into the future.”

Fed officials debated whether to signal a concern with too-low inflation when they met March 18-19 to discuss the likely future path of interest rates.

“A few participants proposed adding new language in which the committee would indicate its willingness to keep rates low if projected inflation remained persistently below the committee’s 2 percent longer-run objective,” according to meeting minutes released April 9. That would involve including a “quantitative element” in the Fed’s statement, according to the report.

Policy makers at the meeting moved away from such quantitative guideposts, dropping language that tied an increase in their benchmark interest rate to a specific level of unemployment. Instead, they said they would consider a “wide range of information,” including measures of labor-market conditions, inflation pressures and financial conditions.

Fed Minutes

The minutes also showed that “a couple” of participants suggested that too-low inflation “raised questions” about whether the Fed was providing enough stimulus. Still, “most” expected prices to return to the 2 percent goal “over the next few years.” Their economic projections in March showed the personal consumption expenditures price index in a range of 1.7 percent to 2 percent by 2016.

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

Wholesale prices rose 0.5 percent in March, driven by the cost of services while commodities stagnated, data showed last week. Import prices climbed 0.6 percent last month following a 0.9 percent gain.

The trend of inflation running below target isn’t just limited to the U.S. Almost two-thirds of the 122 economies tracked by Bloomberg are experiencing smaller gains in consumer prices than a year ago, with many undershooting their goals. Yet policy makers seem to be ignoring the danger of deflation, according to some economists.

To contact the reporter on this story: Shobhana Chandra at schandra1@bloomberg.net

To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net Vince Golle

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