High fuel price lifts consumer price index in March; core inflation softens

Core consumer prices rose at a slow pace in the US last month amid softening economic activity both at home and abroad. The increase was restricted mainly by a decline in clothing and apparel prices, consequent to a shift in the methodology used for calculation. Meanwhile, the headline consumer price index increased at the fastest pace in more than a year.

Data published by the Labor Department Wednesday showed that core consumer prices, excluding volatile items, edged up 0.1% sequentially in March, matching the preceding month’s growth rate. Containing inflation, apparel prices dropped 1.9% month-on-month. It was the fastest decline in several decades.

Latest data showed that core consumer prices, excluding volatile items, edged up 0.1% sequentially in March, matching the February rate

The main consumer price index advanced 0.4% sequentially – the quickest increase since January 2018 – primarily due to a sharp increase in fuel prices and higher food and accommodation costs. Economists were looking for a slower rise. The rate of increase in February was 0.2%. Registering a 3.5% growth, energy prices accounted for nearly two-thirds of the headline inflation in March. The other contributors were food and housing rent.

On a year-over-year basis, meanwhile, core consumer prices rose 2%, which is the smallest increase in a year. That followed a 2.1% rise in February. The headline inflation, on an annual basis, was 1.9%, compared to 1.5% in February.

The softening of core inflation and moderation in economic growth complement the dovish stance adopted by the Federal Reserve after raising the key interest rate four times last year. It is widely expected that the central bank would keep the policy rate unchanged this year.

Also read: Fed chief needs to find a balance between growth and inflation

Some economists believe that the Federal Reserve might even go for a reduction in the main interest rate next year if inflation remains contained in the coming months. It would be in line with the government’s latest stance on monetary policy. The fact that inflation remains tame despite the low unemployment rate and relatively strong wage growth adds to the case for a rate cut in the future.

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