US consumer inflation rises on higher food, rental housing costs

US consumer prices firmed a bit in March in a possible sign that a disinflationary trend has run its course.

While the increase last month should allay concerns among some Federal Reserve officials that inflation was running too low, price pressures remain subdued enough for the US central bank to keep interest rates near zero for a while.

"Will inflation accelerate? There are some indications that it might do so, but only modestly," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The Labor Department said on Tuesday its Consumer Price Index increased 0.2 per cent in March, as a rise in food and shelter costs, especially rental housing, offset a decline in gasoline prices.

The CPI index had gained 0.1 per cent in February.

Economists had expected a 0.1 per cent rise. In the 12 months through March, consumer prices increased 1.5 per cent after rising 1.1 per cent over the 12 months through February.

The so-called core CPI, which strips out the volatile energy and food components, also rose 0.2 per cent in March after edging up 0.1 per cent the prior month.

In the 12 months through March, the core CPI advanced 1.7 per cent after rising 1.6 per cent in February.

"While increases in consumer prices are a good sign for many concerned about disinflation, it is not positive for the overall economy unless wages rise in tandem," said Jay Morelock, an economist at FTN Financial in New York.

The Fed targets 2 per cent inflation and it tracks an index that is running even lower than the CPI. It is expected later this year to end the monthly bond purchases it has been making as part of its massive stimulus program.

Housing struggles

While US demand is picking up and the labor market is tightening a bit, some sectors of the economy such as housing continue to struggle and most economists do not expect the first interest rate hike before the second half of 2015.

The Fed has kept benchmark overnight interest rates near zero since December 2008.

A separate report on Tuesday showed confidence among homebuilders remained downbeat in April. The NAHB/Wells Fargo Housing Market index rose only a point to 47 this month.

Readings below 50 mean more builders view market conditions as poor than favorable. The April reading was the index's third in a row to come in below 50.

Tight credit conditions for buyers and a lack of supply of building lots and labor are hampering housing's recovery. The slowdown in housing is also crimping manufacturing activity.

In a third report, the New York Federal Reserve said its "Empire State" general business conditions index fell to a five-month low of 1.29 in April from 5.61 in March. Economists polled by Reuters had expected a reading of 8.0 for the period.

The index, which is a gauge of manufacturing in New York state, was pulled down by a plunge in new orders. Despite the slump in factory activity in the region, manufacturers managed to push through price increases this month.

A gauge of prices received by manufacturers jumped in April. However, the index for future prices received tumbled.

"It will take much more growth to get firms to believe that price increases can continue," Mr Naroff said. "If businesses don't think price increases can stick, inflation is not likely to accelerate sharply anytime soon."

Last month, consumer prices were bumped up by a 0.4 per cent rise in food prices, which followed a similar gain in February. A drought in the western United States has pushed up prices for meat, dairy, fruit and vegetables.

More price increases could be on the way after food prices at the factory gate posted their biggest gain in 10 months in March. Gasoline prices fell for a third straight month in April.

Within the core CPI, shelter costs increased 0.3 per cent, accounting for almost two-thirds of the rise in the index. Rents increased 0.3 per cent.

There were also increases in medical care, apparel, used cars and trucks, airline fares and tobacco. The cost of recreation, and household furnishings fell.

Copyright @ Thomson Reuters 2014