Washington – Consumer prices rose sharply in March, reflecting higher costs for gasoline, clothes and hotel rooms. Perhaps most troubling, core inflation, which does not include energy and food, rose at the fastest pace in a year.
The Labor Department reported Wednesday that its Consumer Price Index rose by 0.4 percent last month, up sharply from the modest 0.1 percent gain in February. The extra price pressures were led by a big jump in gasoline prices.
With oil prices climbing to record levels above $70 per barrel this week, analysts said motorists should brace for higher prices at the pump.
Excluding energy and food, core inflation rose by 0.3 percent in March, the biggest gain since a similar increase in March 2005.
This acceleration reflected higher prices paid by renters, the biggest jump in clothing costs in seven years and a large increase in airline ticket prices.
Analysts said the increase in core inflation was worrisome because it was so widespread and could show that the relentless rise in energy costs is beginning to spill over into other areas.
“Any way you cut it, inflation was not well contained in March,” said Joel Naroff, chief economist for Naroff Economic Advisors, a private consulting firm. “This was not a good report, especially if you are a member” of the Federal Reserve committee that meets eight times a year to set interest rates. The next one is May 10.
Stock prices edged higher Wednesday, one day after investors pushed the Dow Jones industrial average up 194.99 points. The biggest gain in a year coincided with the release of minutes from the March Fed meeting that indicated the central bank soon could halt its long string of rate increases.
Economists said the Fed lately has emphasized that future rate actions would depend greatly on economic data. Wednesday’s inflation report, economists said, showed that rising price pressures could cause the Fed to go further in lifting rates than just another one-quarter of a percentage point, the increase expected in May.
“Today’s report provides a signal, albeit noisy, that the long-awaited pass-through of higher costs to a wide range of consumer prices has arrived,” said Kenneth Beauchemin, an economist at Global Insight, a forecasting firm.
Other analysts said it would take more than one bad inflation report to push the central bank to raise rates beyond May, especially with some Fed officials worrying that they could overdo the rate tightening and cause the economy to slow too much.
“While the rise in core prices is a bit uncomfortably high, this stand-alone report is not evidence that soaring energy prices are feeding into other prices,” said Sherry Cooper, chief economist at BMO Nesbitt Burns.
Through the first three months of this year, overall inflation has risen at a 4.3 percent annual rate, well above the 3.4 percent price increase for all of 2005.
