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US consumer prices post first drop in 10 months on weak gasoline
[WASHINGTON] US consumer prices fell for the first time in 10 months in March, weighed down by a decline in the cost of gasoline, but underlying inflation continued to firm amid rising prices for healthcare and rental accommodation.
The Labour Department said on Wednesday its Consumer Price Index slipped 0.1 per cent last month, the first and largest drop since May 2017, after climbing 0.2 per cent in February.
In the 12 month through March, the CPI increased 2.4 per cent. That was the largest annual gain in a year and followed February's 2.2 per cent increase. Annual inflation is rising as the weak readings from last year drop from the calculation.
Excluding the volatile food and energy components, the CPI climbed 0.2 per cent, matching February's increase. The so-called core CPI rose 2.1 per cent year-on-year in March, the largest advance since February 2017, after increasing 1.8 per cent in February. The core CPI is now well above the 1.8 per cent annual average increase over the past 10 years.
Economists had forecast the CPI unchanged in March and the core CPI rising 0.2 per cent. The soft headline monthly inflation reading is likely to be temporary as a report on Tuesday showed producer prices rising solidly in March amid strong increases in healthcare and food costs.
The Federal Reserve tracks a different index, the personal consumption expenditures price index excluding food and energy, which has consistently run below the central bank's 2 per cent target since mid-2012.
But with the labor market tightening, the dollar weakening and the stimulus from a US$1.5 trillion income tax cut package and increased government spending still to impact on the economy, economists expect inflation will breach its target sometime this year.
They argue that this scenario could compel the Fed to increase interest rates three more times this year. The US central bank raised borrowing costs last month and forecast at least two more rate hikes in 2018.
Gasoline prices tumbled 4.9 per cent in March, the largest drop since last May, after falling 0.9 per cent in February. Food prices edged up 0.1 per cent after being unchanged in February.
The core CPI was lifted by rising rents and healthcare costs. Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, increased 0.3 per cent last month after climbing 0.2 per cent in February.
Healthcare costs increased 0.4 per cent, with prices for hospital care shooting up 0.6 per cent and the cost of doctor visits rising 0.2 per cent. Apparel prices fell 0.6 per cent after two straight months of robust increases.
There were also declines in the cost of telecommunication, used cares and trucks, tobacco and education.