U.S. Consumer Prices Rose Slightly in March

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Shoppers lining up at the counter of a Target store in Queensbury, N.Y.,  on Nov. 26, 2015. ENLARGE
Shoppers lining up at the counter of a Target store in Queensbury, N.Y., on Nov. 26, 2015. Photo: Andrew Gombert/European Pressphoto Agency

WASHINGTON—U.S. consumer prices rose in March for the first time in four months, but the mild gain underscores that only modest inflation pressures exist in the economy.

The consumer-price index edged higher last month, a 0.1% gain from a month earlier, the Labor Department said Thursday. Prices for gasoline, medical care and shelter all increased in March, but those gains were partially offset by a decline in prices for food and clothing.

Underlying prices, excluding volatile energy and food categories, also barely budged ahead. That muted performance, after strong gains in the first two months of the year, suggest inflation isn’t bouncing back as quickly as some economists projected.

After several years of low inflation, consumer prices appeared to be accelerating early this year, supported by a bottoming out of commodities prices, including oil, and the recent weakening of the dollar. But the weaker-than-expected inflation increase last month underscores that lackluster demand and a soft global economy are still keeping price gains in check.

“Overall inflation, for the time being, is back to where it was before December,” said IHS Global Insight economist Chris Christopher. Inflation pressure should build during the year, but “the change will be very gradual.”

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From a year earlier, overall prices increased 0.9% in March, the slowest annual gain so far this year. Core prices rose 2.2% from a year earlier, also a slightly slower pace than February.

The lack of momentum could be a concern for Federal Reserve policy makers, said PNC Financial Services Group economist Gus Faucher. The Fed “would like to be more convinced of firming inflation before raising the fed-funds rate again,” he said. If inflation isn’t moving toward the Fed’s target “a rate hike could be put off until inflation pressures become more evident.”

The central bank raised the short-term rate in December, but stood pat so far this year. Nearly all economists surveyed by The Wall Street Journal expect the Fed to leave the rate unchanged at a meeting later this month; 75% project a June increase.

Inflation remains subdued compared with earlier expansions. The Fed targets annual consumer price growth of 2%—as measured by a separate Commerce Department index—as a sign the economy is growing healthily but not overheating. The price index for personal consumption expenditures rose just 1% in February, from a year earlier. That measure has undershot the target for nearly four years.

Energy prices have been the primary driver of consumer costs for more than a year. Thursday’s report showed the cost of all forms of energy rose 0.9% last month, the first increase since November. But from a year earlier, prices were still down 12.6%, reflecting a massive decline in oil prices.

Gasoline prices rose a seasonally adjusted 2.2% in March, but were still down 20.9% from a year earlier. Crude oil prices, as traded in markets, have edged up since January but remain well down from year-earlier levels.

Modest inflation pressure outside of energy gyrations is in line with the broader U.S. economy. Job growth has been solid and wage growth steady, but not robust. Meanwhile, output gains have been uneven and consumer spending data indicates demand remains in check. If firms don’t find strong demand for their products, it is difficult to raise prices.

But there are corners of the economy where inflation pressures are increasing.

Shelter costs—reflecting home rent and mortgage payments—increased 0.2% over the month and 3.2% over the year. Rents are rising at an even faster pace. Housing expenses reflect about a third of the consumer-price index.

The cost of medical care services rose 0.1% last month, a slowdown from the prior two months’ gains, but prices are still up 3.6% from a year earlier.

Meanwhile, food prices fell 0.2% last month. The “food at home” category, a proxy for groceries, fell 0.5%, the largest decrease since April 2009. Apparel prices fell 1.1% and new vehicles prices were unchanged.

In a separate Labor Department report Thursday, Americans’ average weekly earnings, adjusted for inflation rose 0.2%. The increase reflected better pay being offset by the uptick in inflation.

Eric Morath at eric.morath@wsj.com



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