A rebound in fuel prices helped push overall retail prices higher in March but inflation remains about as far from a threat as possible to the U.S. economy, according to a new Commerce Department report.
The Consumer Price Index increased just 0.1% from the month before, less than many analysts were expecting, following a 0.2% decline in February.
Over the past 12 months the CPI has increased just 0.9%, down from a one-year rate of 1% in February.
Core prices, which strip out volatile food and energy costs, rose 0.1% in March, the smallest gain since last August. That followed a 0.3% February gain.
The minimal rise in consumer inflation reinforces the conclusion of waning price pressures drawn Wednesday following an unexpected drop in the Producer Price Index, according to Lindsey Piegza, chief economist at Stifel Fixed Income.
“With sustained low energy costs, negative import prices and faltering wage growth, reaching the Fed’s longer-term objective of 2% inflation, at this point, remains little more than a policymaker’s dream,” she said. “As the Fed noted in the latest March Federal Open Market Committee meeting minutes, inflation will likely remain subdued for some time as a result of sluggish international growth, as well as earlier declines in energy prices and appreciation of the dollar.”
In other words, this latest report makes it increasing difficult for the Fed to interest raise rates even once in the remaining nine months of 2016, following the first hike in years last December.
Fed Says Overall Economy, Trucking Improving
The report follows the release of the Beige Book on Wednesday by the Federal Reserve, which said national economic activity continued to expand in late February and March, though the pace of growth varied across different parts of the country.
The report is based on anecdotal information on current economic conditions in the Fed's 12 districts through reports from bank and branch directors and interviews with key business contacts, economists, market experts, and other sources.
Most districts said that economic growth was in the modest to moderate range and that growth was expected to remain in that range going forward.
“Consumer spending increased modestly in most districts and reports on tourism were mostly positive, labor market conditions continued to strengthen, and business spending generally expanded across most districts,” the report said. “Manufacturing activity increased in most districts. Construction and real estate activity also expanded. Low prices weighed on energy and mining output as well as prospects for agricultural producers. Overall, prices increased modestly across the majority of districts, and input cost pressures continued to ease.”
The report also noted trucking firms reported stable to stronger growth in demand in recent weeks.
“Trucking contacts cited notable increases in overall tonnage during the reporting period. Port contacts cited continued growth in container traffic, bulk and breakbulk cargo, and autos,” the report said. “A contact in the trucking industry reported an increase in revenue and reduced costs from low diesel prices, and others in the industry have announced expansion plans.”