Inflation Accelerates in March
Consumer prices rose sharply in March, driven up by higher costs for gasoline, clothes and hotel rooms, the government reported Wednesday.
Perhaps most troubling, core inflation, which does not include energy and food, rose at the fastest pace in a year.
The Labor Department reported that its consumer price index rose 0.4% last month after a 0.1% gain in February.
The extra price pressures last month were led by a big jump in gasoline prices. With oil prices climbing to record levels above $70 per barrel this week, analysts said motorists should brace for more pain at the pump.
Excluding energy and food, core inflation rose 0.3% in March, the biggest gain since a similar increase in March 2005.
The acceleration in core inflation reflected higher prices paid by renters, the biggest jump in clothing costs in seven years and a large increase in airline ticket prices.
Analysts said the increase in core inflation was worrisome because it might indicate that the relentless rise in energy costs was beginning to spill over into other areas.
“Any way you cut it, inflation was not well contained in March,” said Joel Naroff, chief economist for Naroff Economic Advisors, a consulting firm. “This was not a good report, especially if you are a member” of the Federal Reserve committee that meets eight times a year to set interest rates. The next meeting is May 10.
Economists said the Fed lately has emphasized that future rate actions would depend greatly on the economic data.
Wednesday’s inflation report, economists said, suggests that rising price pressures may prompt the Fed to go further in lifting rates than just the one additional quarter-percentage-point increase that is expected in May.
Other analysts said it would take more than one bad inflation report to push the central bank to raise rates beyond May, especially with some Fed officials worrying that they could overdo the rate tightening and cause the economy to slow too much.
In the first three months of this year, consumer prices rose at a 4.3% annual rate, far above the 3.4% rate for all of 2005.
The price acceleration reflected rising energy prices, which are up at a 21.8% annual rate through March, compared with a 17.1% rise for all of 2005.
Core inflation was up at an annual rate of 2.8% in the first three months of this year, higher than the 2.2% increase for all of 2005.
The 0.4% overall price increase for March was the largest since a 0.7% gain in January. It reflected a 1.3% jump in energy prices following a 1.2% energy price decline in February.
The energy increase was led by a 3.6% increase in gasoline prices. Analysts said this week’s spurt in crude oil prices to record levels would mean even higher gasoline costs as Americans moved into the peak driving season. Some economists said gasoline could peak at $3.50 a gallon this summer.
Food costs in March edged up 0.1%, reflecting declines in the price of fresh fruits and vegetables.
The 0.3% rise in core inflation included a 1% increase in clothing costs, the biggest one-month jump in seven years.
In a separate report, the Labor Department said that average weekly earnings, after adjusting for inflation, dropped 0.3% in March. In February, real earnings rose by 0.4%.
