Consumer prices, retail sales fell in March

The economic case for a Federal Reserve interest rate increase in June just became a little less solid.

Inflation took a step back in March at the same time retail sales dropped for a second month, according to a pair of U.S. government reports Friday.

Labor Department data showed the consumerprice index fell a largerthan-forecast 0.3 percent, while a measure excluding food and energy fell by the most since 1982.

Core inflation, which excludes food and energy, dropped 0.1 percent last month. Over the past 12 months, inflation is up 2.4 percent while core prices have risen 2 percent.

The Federal Reserve seeks to manage the economy to produce annual increases in inflation around 2 percent. But since the 2007-2009 recession, the worst downturn in seven decades, inflation for a number of years lagged below the 2 percent level, raising concerns that the economy could be in danger of toppling into a destabilizing period of falling prices, something not seen in America since the 1930s.

However, with steady gains in employment and a jobless rate now down to 4.5 percent, the lowest in nearly a decade, and energy prices rebounding, inflation is beginning to rise.

The Fed last month boosted a key interest rate for the second time in three months and has projected two more rate hikes this year. Three rate hikes this year compare to single rate hikes in each of the past two years. The Fed uses higher interest rates to keep inflation under control.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said that the drop in prices in March could have been influenced by problems the government had in adjusting for Easter sales. He said if there were more of a slowdown in inflation in April, that could force the Fed to change its plans for future rate hikes.

“Another month like March and a June rate hike will become less likely,” he said in a research note.

Financial markets in the U.S. were closed for Good Friday.

Retail sales were down 0.2 percent last month after a 0.3 percent drop in February that had previously been reported as a gain, Commerce Department data showed.

But over the past 12 months, retail sales have risen 5.2 percent, a sign that that the economy remains on stable footing.

Six of 13 major retail categories registered lower March receipts.

Low prices may have also played a role in restraining total sales as the retail figures aren’t adjusted to account for changes in inflation.

Two more months of economic data will be available before the Fed’s June 13-14 meeting.

Spending, which accounts for about 70 percent of the economy, has room to pick up on the heels of steady hiring, healthier household balance sheets and more optimistic consumers.

GENE J. PUSKAR/AP Retail sales fell for the second straight month in March, the Commerce Department said.