Consumer prices edge up in March

U.S. core inflation slipped in March and groundbreaking for new homes rose slightly as the economy demonstrated anew an ability to keep growing without generating surging prices.

The Labor Department on Tuesday said its monthly consumer price index climbed 0.6% after a 0.4% rise in February. But core prices, which exclude food and energy, were up only 0.1% after larger gains of 0.2% in February and 0.3% in January.

Economist David Sloan of 4CAST Ltd. in New York said gains in core prices now seemed to be on an encouraging downward trend.

“We saw slightly disappointing core CPI numbers in January and February, and I think this is a correction, which means the trend is fairly stable,” he said.

Separately, the Commerce Department said housing starts rose to an annual pace of 1.518 million units in March from a revised 1.506 million unit pace in February.

Another report from the Federal Reserve said industrial production unexpectedly eased 0.2% in March, primarily because utilities output eased after big gains in February that were spurred by cold weather.

The manufacturing component of industrial output gained a healthy 0.7% after a slight 0.1% rise in February, which analysts saw as another sign of the economy’s durability.

“Manufacturing has been sporadic, and this is a solid sign that we are not turning the corner downwards given the problems in housing,” said Kurt Karl, chief U.S. economist at Swiss Re in New York.

The overall rise in consumer prices was the largest since a matching 0.6% surge last April but financial markets focused on the small gain in core prices.

Energy costs were the main driver in the overall rise in consumer prices.

Gasoline prices jumped 10.6%, eclipsing a slim 0.3% gain in February. It was the largest increase in gasoline prices since a 17.4% gain in September 2005.

Fed policymakers have been wary about the potential for a rise in inflation pressures, maintaining that the core rate has been high so March’s slight pickup may be reassuring.

Charles Plosser, president of the Philadelphia Federal Reserve Bank, said the smaller rise in core prices was helpful but needed to be extended. “The important question is whether it will continue,” Plosser said.

Analysts say higher energy prices tend not to be passed through into consumers’ expectations about inflation. Nonetheless, consumers still must buy food and fuel and that leaves less for spending on other goods.

The Labor Department said in the first quarter, overall consumer prices rose at a seasonally adjusted annual rate of 4.7%, nearly twice the 2.5% gain for all of 2006. Stiffer energy costs accounted for 41% of the overall increase in first-quarter consumer prices, the department said.