Consumer prices likely increased only slightly in March, with the impact of rebounding energy costs tempered by a strong dollar’s downward pressure on the prices of imported goods.

Tomorrow, the Bureau of Labor Statistics will release the consumer-price index (CPI) for March, a measure of what Americans pay for everything from peanut butter to penicillin. Bloomberg’s survey of the nation’s top economists predicts the data will show a 0.2 percent increase in prices of all consumer goods and services, but only a 0.1 percent increase in so-called “core prices,” a measure that excludes the uniquely volatile categories of food and energy.

If the consensus proves true, it will mean that the rate of overall inflation remained unchanged from February, while core inflation ticked down one-tenth of a point; and, as in February, recovering energy prices will have propped up weakness in core goods.

“There’s been stabilization on the consumer level on retail gasoline prices,” said Sam Bullard, a senior economist at Wells Fargo Securities. “That seems to have slacked just a bit recently, but it’s no longer the downward driver that the strong dollar is for imports.”
U.S. Import prices fell .3 percent in March, according to data released by the Labor Department last week.

The dollar’s long rally has made U.S. inflation largely dependent on increases in service prices. Four of the last seven months saw deflation in the prices of core goods. February’s report found that core goods prices had fallen -0.5 percent year-over-year, while core service prices had risen 2.5 percent.

“Service prices have been keeping the core numbers in positive territory,” said Josh Shapiro, chief economist for Maria Fiorini Ramirez Inc. “And the only thing that will really boost those is increased labor costs, which we’re not seeing.”

Last month, wages grew 0.3 percent, but employment growth proved jarringly weak, falling 124,00 jobs short of expectations. Indicators released this week suggest that shortfall might not have been an aberration, but a reflection of a broader economic slowdown. Retail sales and housing starts both underperformed in March, while jobless claims exceeded projections.

Another month of tepid inflation will discourage the Federal Reserve from raising benchmark interest rates at their June meeting. The central bank has kept its short-term interest rate near zero since December of 2008, in an effort to encourage lending and stimulate economic growth.

Thursday morning, President of the Atlanta Fed Dennis Lockhart told Market Watch that he supported “waiting a while longer” before raising rates, in order to confirm the resilience of the present recovery. Nonetheless, Lockhart predicted that the soft growth of the first quarter would soon grow more robust, saying “My outlook for the remainder of the year is for further progress toward full employment with inflation gradually firming.”


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