US consumer prices rise solidly, but underlying trend remains tame

WASHINGTON: US consumer prices increased by the most in 14 monthsinMarch,buttheunderlying inflation trend remained benign amid slowing domestic and global economic growth.

The mixed report from the Labor Department on Wednesday was broadly supportive of the Federal Reserve’s decision last month to suspended its three-year campaign to raise interest rates.

The US central bank dropped projections for any rate hikes this year after lifting borrowing costs four times in 2018.

Minutes of the Fed’s March 19-20 meeting, published on Wednesday, showed most policymakers viewed price pressures as ‘muted,’ but expected inflation to rise to or near the central bank’s 2 per cent target.

The Fed’s preferred inflation measure, the personal consumption expenditures price index excluding food and energy is currently at 1.8 per cent.

“For the most part, inflation remains tame,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “The Fed effectively went on vacation and is likely to stay there for quite a few more months.”

The Labor Department said its Consumer Price Index rose 0.4 per cent, boosted by increases in the costs of food, gasoline and rents. That was the biggest advance since January 2018 and followed a 0.2 per cent gain in February.

In the 12 months through March, the CPI increased 1.9 per cent. The CPI gained 1.5 per cent in February, which was the smallest rise since September 2016.

Economists polled by Reuters had forecast the CPI climbing 0.3 per cent in March and accelerating 1.8 per cent year-on-year.

Stripping out the volatile food and energy components, the CPI nudged up 0.1 per cent, matching February’s gain.

The so-called core CPI was held down by a 1.9 per cent plunge in apparel prices, the largest drop since January 1949.

The government last month introduced a new method and data to calculate apparel prices.

Apparel prices, which had increased for two straight months, trimmed the core CPI by 0.07 percentage point in March. Many economists expected a reversal in April.

“The new price collection methodology for apparel incorporates corporate data from one unidentified department store to complement prior survey-based collection,” said Kathy Bostjancic, head of US Macro Investor Services at Oxford Economics in New York. “The new methodology appears more likely to show large monthly declines due to the lifecycle of apparel.”

In the 12 months through March, the core CPI increased 2.0 per cent, the smallest advance since February 2018. The core CPI rose 2.1 per cent year-on-year in February.

The dollar was trading slightly lower against a basket of currencies, while US Treasury prices rose. Stocks on Wall Street were mostly higher.

Inflation has remained muted, with wage growth increasing moderately despite tightening labour market conditions. — Reuters