Inflation Accelerated in March Due to Strengthening Economy -- Update
By Gwynn Guilford
U.S. consumer prices picked up sharply in March as the economic
recovery gained momentum, partly reflecting higher gasoline
The Labor Department said Tuesday that the consumer-price index
-- which measures what consumers pay for everyday items including
groceries, clothing, recreational activities and vehicles -- jumped
2.6% in the year ended March, and rose a seasonally adjusted 0.6%
in March from February.
The so-called core CPI, which excludes the often-volatile
categories of food and energy, climbed 1.6% over the prior year,
and was up 0.3% in March from February.
"Inflation in March 2021 is still under control," said Gus
Faucher, chief economist at the PNC Financial Services Group,
before the report was released. "It takes time for inflationary
pressures to build in the economy."
March's reading marks the start of what many economists expect
to be a monthslong upswing in prices, after nearly a year of muted
overall inflation as the Covid-19 pandemic doused consumer
spending. Whether this rise proves temporary is one of the key
questions for markets and the U.S. recovery over the next year or
so, as the Biden administration, Congress and the Federal Reserve
continue to provide financial support for the economy.
The Fed expects inflation to rise temporarily this year because
of growing demand fueled by increased vaccination rates, falling
restrictions on businesses, trillions of dollars in federal
pandemic relief programs and ample consumer savings.
More than a third of Americans have now received at least one
Covid-19 vaccine shot, according to the U.S. Centers for Disease
Control and Prevention, and Congress last month approved another
$1.9 trillion in fiscal support. On March 31 President Biden
proposed spending $2.3 trillion over eight years on infrastructure
and other investments.
Economists forecast real U.S. gross domestic product will grow
at a seasonally adjusted annual rate of 8.1% in the second quarter,
according to The Wall Street Journal's recent survey, putting the
U.S. economy on track for its best year since the early 1980s. As
demand rebounds, higher prices -- and, as a result, higher interest
rates -- are to be expected.
The annual inflation measurements in coming months will be
boosted as well by comparisons with the figures from last year,
when prices dropped steeply because of collapsing demand for many
goods and services -- including airfares, hotels and apparel -- as
the pandemic hit the economy, many businesses closed and consumers
hunkered down at home.
These so-called base effects will boost the 12-month CPI
readings further in April and May, and start diminishing in June,
said Rubeela Farooqi, chief U.S. economist at High Frequency
Economics. "But prices will still be supported by the economy
reopening, especially the service sector, which will unleash
Meanwhile, rising production costs are already pushing up prices
of many household goods. Kimberly-Clark Corp., the maker of Huggies
diapers and Scott paper products, said last week that it will start
raising prices on much of its North America consumer products to
help defray higher raw-material costs. A number of other
consumer-products makers -- including Cheerios maker General Mills
Inc., Skippy peanut-butter maker Hormel Foods Corp. and pet-snacks
maker J.M. Smucker Co. -- have indicated similar plans.
The economists surveyed expect this year's inflation pickup to
prove transitory. They projected on average that annual inflation,
measured by the CPI, will rise to 3% in June, which would be the
highest rate since 2012, before falling to 2.6% by December.
Fed officials also expect the inflation surge to pass. Their 2%
inflation target is based on a different measure: the price index
of personal-consumption expenditures, which tends to run a bit
below the CPI. Their latest projections show annual PCE inflation
rising from 1.6% in February to 2.4% by the fourth quarter,
receding to 2% in 2022 and edging up to 2.1% by the end of
The Fed has said it would start to raise interest rates from
near zero when PCE inflation reaches 2% and is headed higher, and
full employment has been achieved. Officials last month projected
they wouldn't reach that point until after 2023.
Some economists, however, see rising risks that inflation could
keep accelerating more than the Fed expects, forcing it to raise
interest rates sooner than anticipated to cool price pressures.
Write to Gwynn Guilford at firstname.lastname@example.org
(END) Dow Jones Newswires
April 13, 2021 09:20 ET (13:20 GMT)
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