By Gwynn Guilford
U.S. consumer prices rose sharply in March as the economic
recovery gained momentum, marking the start of an expected
monthslong pickup in inflation pressures.
The Labor Department reported 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, the highest since August
2018, and rose a seasonally adjusted 0.6% in March from
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.
The CPI increased more sharply in March than in February, when
it rose 1.7% on an annual basis and 0.4% from a month earlier. Core
CPI that month was up 1.3% over the previous year, and 0.1% versus
"One of the major things we're seeing that marks a big change
from recent years is that really for the first time in a decade you
have a wide range of businesses with pricing power right now --
we're seeing that across the goods sector and the services sector,"
said Sarah House, senior economist at Wells Fargo Securities.
"After a year of closures, people are eager to get out and spend,
and they have the means to do it."
The acceleration in the overall CPI in March came in large part
from energy prices, particularly gasoline prices, which climbed
9.1%, said Gus Faucher, chief economist at the PNC Financial
Services Group. "Those big increases won't last, and core inflation
was moderate at 0.3%," he said. "I won't be concerned until we see
a sustained acceleration in core inflation -- monthly readings of
0.4% or higher for more than just a few months."
Economists widely expect consumer prices to keep climbing in the
months ahead 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.
Services prices, excluding energy, rose 0.4% on the month, the
fastest pace since July 2020, as the country's recovery from the
initial Covid-19 impact took off. Prices for hotels, car rentals,
airfare and admission to sporting events were all up over the past
month, noted Ms. House.
"We see a real awakening of the service economy in these
numbers," she said.
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, would 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 10:58 ET (14:58 GMT)
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