March was a good month for consumer prices, a report due out Tuesday by the Bureau of Labor Statistics is expected to show. Consumer prices are expected to remain flat, due to falling gas prices, contained food costs and moderate increases in medical costs, economists say.
“The inflation fears many people have are not coming to pass,” said Dr. Scott J. Brown, chief economist at Raymond James & Associates, Inc.
Gasoline prices fell in March, economists said, making gas more affordable for consumers. In February, gasoline rose 9.1%, bumping up the 12-month inflation number from 1.6% in January to 2%. But gas prices began to fall on February 23, and the continued decline in March, along with seasonal adjustment factors, will keep overall inflation from rising.
Core inflation, with excludes volatile food and energy costs, is expected to remain low with a slight 0.1% increase in March.
A draught in the Midwest last summer was expected to increase food prices in 2013, but so far those increases have not realized. Food prices last month only rose 0.1%. Economists do not anticipate major increases in the March report.
“People have been pleasantly surprised,” said Russell Price, senior economist at Ameriprise Financial in Detroit. Food prices have been relatively contained, he said.
Medical costs, which have been rising higher than overall inflation, are expected to show only moderate increases in March. Obama’s Affordable Care Act, economists said, could control future medical costs from escalating, but it remains to be seen if the policy will be effective.
Inflation is not likely to have a negative effect on households in 2013, Dr. Robert A. Dye, chief economist at Comerica Bank in Dallas, said. But, he does expect to see housing costs like rents go up, which could put pressure on core CPI.
The big question is whether or not consumers can manage even slight increases. A high unemployment rate of 7.6% and the payroll tax increase could slow consumer spending in the months to come.
“Even though inflation has been relatively low, wages have been low,” Brown said.
The payroll tax increase could still be affecting certain households. While income earners in the top 20% won’t flinch at the increase and are likely to continue spending, middle class families could still scale back spending.
Slight increases in costs are healthy for the economy and manageable, Price said. “You do want to see a little bit of price growth because that creates demand for goods and services,” he said. “Americans can handle increases.”