US consumer prices barely rise in March

[WASHINGTON] US consumer prices rose less than expected in March and underlying inflation slowed, suggesting the Federal Reserve will remain cautious about raising interest rates this year.

The Labour Department said on Thursday its Consumer Price Index gained 0.1 per cent last month as a rebound in gasoline prices was partly offset by a drop in the cost of food. There were also slowdowns in medical care and housing costs.

The CPI fell 0.2 per cent in February. In the 12 months through March, the CPI increased 0.9 per cent after advancing 1.0 per cent in February.

Economists polled by Reuters had forecast the CPI gaining 0.2 per cent last month and rising 1.1 per cent from a year ago.

The so-called core CPI, which strips out food and energy costs, inched up 0.1 per cent. That was smallest increase since August and followed a 0.3 per cent increase in February.

In the 12 months through March, the core CPI rose 2.2 per cent after gaining 2.3 per cent in February.

The Fed has a 2 per cent inflation target and tracks an inflation measure which is running below the core CPI. The moderation in the monthly core CPI reading comes after Fed Chair Janet Yellen recently expressed doubts about the sustainability of broad gains in prices.

Ms Yellen said she believed that "transitory" factors were behind the recent run-up in prices. The combination of benign inflation and weak economic growth in the first quarter suggest the Fed will not hike rates again before September, even as the labor market strengthens.

The Fed lifted its benchmark overnight interest rate in December for the first time in nearly a decade and policymakers recently forecast only two more rate hikes this year.

Despite the healthy labor market, reports on trade, wholesale inventories, retail sales and business spending suggest economic growth almost halted in the first quarter after recording a 1.4 per cent annualized rate in the fourth quarter of 2015.

Growth estimates for the January-March quarter are as low as a 0.2 per cent pace.

Gasoline prices rose 2.2 per cent in March after plunging 13.0 per cent in February. Food prices fell 0.2 per cent last month, with the cost of food consumed at home posting its largest decline since April 2009.

The core CPI was restrained by housing and medical costs, as well as apparel. Owners' equivalent rent of primary residence increased 0.2 per cent after increasing 0.3 per cent in February. Medical care costs slowed their rapid ascent, gaining 0.1 per cent after shooting up 0.5 per cent in February.

Apparel prices fell 1.1 per cent in March, reversing the prior month's 1.6 per cent advance. Prices for new motor vehicles were unchanged while the cost of used cars and trucks dipped 0.1 per cent.

REUTERS