Washington

US INFLATION is finally about to get the pick-up that the Federal Reserve has been waiting for. A closer look at the math shows why it's still too soon to declare "mission accomplished".

An unusual plunge in costs for mobile-phone services in March 2017 has weighed on the consumer-price index (CPI) excluding food and fuel. That drag is now set to fade, dialling up the year-over-year comparisons: in the 12 months ended March, the core CPI rose 2.1 per cent after climbing 1.8 per cent in February, according to the median estimate in a Bloomberg survey ahead of Labor Department figures due on Wednesday. The 0.3 percentage-point acceleration from a month earlier would be the biggest since 2004.

While the Fed's preferred gauge of inflation is a separate consumption-based figure that's still shy of its 2 per cent goal, the core CPI's leap above that threshold is certain to grab attention - even though it's mainly a reminder of the transitory weakness in wireless costs often cited by central bankers. Other reports suggest the economy, while expanding with rising prices, isn't yet overheating.

Inflation "might come across as being stronger than it actually is, if someone was just focusing on the year-over-year number," said Sarah House, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. While "the momentum is building, it's just a little bit exaggerated" by the wireless-costs comparison.

"The report has the potential to be a little bit misunderstood," as "there's a psychological effect that the core CPI is back above 2 per cent."

Inflation hawks and investors are on the look-out for incremental signs of price pressures that could trigger faster interest-rate hikes by the central bank, which later on Wednesday will publish minutes of its March meeting, when it raised borrowing costs. Both reports will be digested by a stock market buffeted by concerns that a trade dispute will stoke import prices and boost costs for businesses.

Month-over-month data indicate some moderation in core CPI, and energy prices may also have been a drag on overall inflation in March, Ms House said. The median forecasts in the Bloomberg survey show core CPI rose 0.2 per cent for a second month, while the headline gauge was unchanged from February.

Nonetheless, a pick-up in the annual core CPI gain will help vindicate Fed policymakers' assertion that transient factors were restraining inflation last year. Mobile-phone service costs slumped a record 7 per cent in March 2017 as carriers sweetened data packages, and this category, along with weaker prices for items such as cars and medical care, continued to be soft.

"The 2017 shortfall from our 2 per cent goal appears to reflect, at least partly, some unusual price declines, such as for mobile-phone plans, that occurred nearly a year ago," Fed Chairman Jerome Powell said in a speech Friday. "The 12-month change should move up notably this spring as last spring's soft readings drop out of the 12-month calculation."

Fed policymakers last month projected 1.9 per cent inflation for 2018 based on their preferred index, unchanged from December's median forecast.

For March, about two-thirds of the projected 0.3 percentage-point acceleration in the annual core CPI came from the wireless roll-off alone, Brett Ryan of Deutsche Bank Securities estimates. BLOOMBERG