Ahead of the Bell: US Consumer Prices

US consumer prices likely rose 0.1 percent in March; cheaper energy helps offset food costs

Associated Press

WASHINGTON (AP) -- The Labor Department reports on changes in the consumer price index in March. The report will be released at 8:30 a.m. Eastern time Tuesday.

SMALL INCREASE: Economists forecast that consumer prices increased just 0.1 percent last month, according to a survey by FactSet. That would match modest gains in February and January. In February, food prices rose at the fastest pace in almost 2 ½ years. But falling costs for gas, electricity, clothing and used cars offset much of that increase.

Excluding volatile costs for food and energy, core prices are expected to have risen just 0.1 percent in March.

SLIGHT INFLATION: Economists expect food prices to have increased in March. A separate Labor Department report from last week found that wholesale food costs jumped last month, including a 30.4 percent leap in hog prices and 12.4 percent increase in poultry.

But inflation should be limited as price increases in gasoline rose at a slower rate than they typically do every March, when refiners begin to change their seasonal blends ahead of summer. Natural gas and electricity costs also likely declined in March.

Overall, there are few signs of rising inflation. It has been held back by sluggish growth and a tough job market, which makes it harder for retailers and other businesses to raise prices. In February, prices over the prior 12 months increased just 1.1 percent.

Consumer prices rose just 1.5 percent in 2013, down from 1.8 percent in 2012. Both figures are below the Federal Reserve's 2 percent target.

Shoppers may prefer lower prices, but super-low inflation could stall economic growth. Lower prices encourage consumers to delay purchases and they can also make inflation-adjusted interest rates higher, potentially discouraging borrowing.

Still, low inflation has enabled the Federal Reserve to pursue extraordinary stimulus programs to try and boost economic growth.

The Fed is now trying to unwind some of that stimulus. It plans to purchase $55 billion in bonds this month, down from $85 billion in March of last year. The bond purchases are intended to lower long-term interest rates, which can spur borrowing and spending.

Despite scaling back its purchases, Fed officials have voiced concern about inflation running below their target. As a result, Fed officials are prepared to hold shorter-term interest rates near zero even if unemployment falls by roughly a percentage point from its current level of 6.7 percent. This suggests that the Fed might not raise rates until the middle of 2015.

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