Price growth was weaker than expected in March in the US, adding to the uncertainty over when the Federal Reserve will next pull the trigger on an interest-rate increase.
After strong core inflation readings for January and February, the Consumer Price Index rose just 0.1 per cent from February to March, missing analyst forecasts. Core inflation, which strips out food and energy, was 2.2 per cent compared with March last year — a softer reading than February’s 2.3 per cent gain.
The weaker readings were driven by a month-on-month fall in clothing prices and lower healthcare inflation.
The Fed targets an alternative measure of inflation called the personal consumption expenditures price index, but Thursday’s CPI data will be closely watched by policymakers. Officials have differed over how much weight to put on stronger figures in January and February, with Fed chair Janet Yellen saying in March that she was “wary” of reading too much into the higher numbers.
Since then Ms Yellen has signalled that a rate move in April is unlikely as she underscored the need for the Fed to “proceed cautiously” in lifting rates given the uncertain inflation outlook. Dennis Lockhart, the Atlanta Fed president, told Bloomberg News on Thursday that he would not be advocating a move this month amid question marks over inflation and consumer spending.
Diane Swonk, founder of DS Economics, said softer trends in healthcare and rents could give doves on the Federal Open Market Committee reason to push back against more hawkish officials who want to see a move soon. “This report is not conclusive but raises some questions,” she said.
Analysts at Bank of America Merrill Lynch estimated that annual growth in the core PCE measure was likely to be 1.5 per cent for March, down from 1.7 per cent in February. That is well below the Fed’s 2 per cent target.
The inflation numbers come amid evidence of a weakening in overall Gross Domestic Product growth in the first quarter of the year. The Atlanta Fed’s GDPNow indicator points to expansion of just 0.3 per cent in the first three months of the year.
The question for Fed policymakers is whether the US is seeing a repeat of the trend last year, when depressed first-quarter numbers gave way to punchier figures later in the year, or whether the US economy is seeing a more significant slowdown.
One area of the US economy is showing no signs of losing momentum: the labour market. The number of Americans filing for unemployment benefits last week slid to 253,000, matching the lowest level since 1973.
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