Core Consumer Prices in U.S. Cool in Sign Pickup Transitory

  • Gain of 0.1% was less than forecast and smallest since August
  • Restrained by biggest plunge in clothing costs since 1998

The cost of living in the U.S. excluding food and fuel rose less than forecast in March, bearing out Federal Reserve Chair Janet Yellen’s forecast that the recent pickup would prove fleeting.

The core consumer-price index increased 0.1 percent, the smallest gain since August, after consecutive 0.3 percent gains the prior two months, a Labor Department report showed Thursday in Washington. The median forecast of 81 economists surveyed by Bloomberg called for a 0.2 percent gain. Including the volatile food and fuel categories, the index also rose 0.1 percent.

A modest rebound in energy costs and less appreciation in the dollar haven’t been enough to allow inflation to show sustained gains. Fed officials, already challenged by sluggish global demand prospects, may not be able to make a case for more immediate interest-rate increases as price growth has lingered below their goal for four years.

“We’re still importing deflation from other areas of the world,” said Brett Ryan, a U.S. economist at Deutsche Bank in New York. “The Fed’s not going to be in any hurry to hike again if there’s a soft inflation profile.”

Estimates for core consumer prices in the Bloomberg survey ranged from gains of 0.1 percent to 0.3 percent. At a year-over-year rate, core prices rose 2.2 percent in March after climbing 2.3 percent the prior month.

Bloomberg Survey

The increase in total prices was smaller than the 0.2 percent gain projected by the median forecast of economists surveyed by Bloomberg, which ranged from advances of 0.1 percent to 1.1 percent advance. The CPI climbed 0.9 percent in the 12 months ended in March after rising 1 percent in the year through February.

Another report from the Labor Department Thursday showed the number of Americans filing applications for unemployment benefits unexpectedly declined last week to match a more than 42-year low, indicating employers are confident the economy will work its way out of a soft patch.

Jobless claims dropped by 13,000 to 253,000 in the week ended April 9, equaling the level reached in early March as the lowest since December 1973.

Energy, Food

The report on consumer prices showed energy costs increased 0.9 percent in March after dropping 6 percent a month earlier, the report showed. Food costs fell 0.2 percent, led by a 0.5 percent drop in groceries that was the biggest since April 2009.

The core index was held back by declines in costs of clothing, airline fares, used cars and trucks and communications. Medical care also rose at a slower pace last month.

Apparel prices dropped 1.1 percent last month, the biggest decrease since September 1998, after surging 1.6 percent in February. Clothing was one of the categories behind the pickup in prices at the start of the year and the retreat bears out Fed Chair Yellen’s projection that some gains would be reversed.

Fed officials, who raised the benchmark interest rate in December for the first time since 2006, may find it difficult to support increases should inflation not pick up.

Fed’s Gauge

The central bank’s preferred price-growth gauge is the Commerce Department’s personal consumption expenditures measure, which hasn’t met the Fed’s 2 percent goal since April 2012.

The CPI is the broadest of three price gauges from the Labor Department because it includes all 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.

The Labor Department’s gauge of wholesale prices, which includes 75 percent of all U.S. goods and services, unexpectedly decreased 0.1 percent in March. A separate report showed the cost of imported goods rose 0.2 percent last month, below the Bloomberg survey median forecast for a 1 percent increase.

(Updates with chart.)

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