U.S. inflation pressures benign

April 14, 2016 08:15 AM

U.S. 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.

Other data on Thursday showed the number of Americans filing for unemployment benefits fell last week, revisiting a level last seen in 1973, showing sustained strength in the labor market.

The Labor Department said its Consumer Price Index gained 0.1% last month as a rebound in gasoline prices was partly offset by a drop in the cost of food. There were also slow-downs in medical care and housing costs.

The CPI fell 0.2% in February. In the 12 months through March, the CPI increased 0.9% after advancing 1.0% in February. Economists had forecast the CPI gaining 0.2% last month and rising 1.1% from a year ago.

The so-called core CPI, which strips out food and energy costs, inched up 0.1%. That was smallest increase since August and followed a 0.3% increase in February. In the 12 months through March, the core CPI rose 2.2% after gaining 2.3% in February.

The Fed has a 2% inflation target and tracks an inflation measure which is running below the core CPI.

The moderation in the core CPI readings comes after Fed Chair Janet Yellen recently expressed doubts about the sustainability of broad gains in prices. Yellen said she believed that "transitory" factors were behind the recent run-up in prices.

The dollar fell against the euro and the yen on the inflation data, while price for U.S. government debt rose.


Healthy labor market

In a second report, the Labor Department said initial claims for state unemployment benefits decreased 13,000 to a seasonally adjusted 253,000 for the week ended April 9. That matched the level for early March, which was the lowest since November 1973.

Jobless claims have now been below 300,000, a threshold associated with healthy labor market conditions, for 58 weeks, the longest stretch since 1973.

Despite labor market strength, the Fed will probably not hike rates again before September given benign inflation and weak economic growth in the first quarter.

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.

Reports on trade, wholesale inventories, retail sales and business spending suggest economic growth almost halted in the first quarter after recording a 1.4% annualized rate in the fourth quarter of 2015. Growth estimates for the January-March quarter are as low as a 0.2% pace.

Last month, gasoline prices rose 2.2% after plunging 13.0% in February. Food prices fell 0.2% 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% after increasing 0.3% in February. Medical care costs slowed their rapid ascent, gaining 0.1% after shooting up 0.5% in February.

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

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