Consumer Prices Edge Up 0.2% As Lower Energy Costs Offset Gains

Consumer inflation in March edged up by the smallest amount this year as a big drop in energy prices helped offset sharp increases in airline fares, auto loans and hotel rooms.

Many economists said the report, which followed benign news on wholesale prices, showed that inflation is not getting out of control and would allow the Federal Reserve to refrain from boosting interest rates, possibly for the rest of this year.

Financial markets, which had been setting a string of records on the hopes that slower growth and slight inflation news would signal an end to Fed credit-tightening, had a decidedly ho-hum response to both inflation reports.

Even with the slight, 0.2-percent CPI increase in March, some analysts suggested investors are not convinced that inflation is in check.

“Some of this good inflation news is not built on reality,” said Robert Brusca, senior economist at Nikko Securities in New York. “Energy prices won’t be going down in coming months, they will be going up. And I have concerns about what the sharp decline in the dollar will do to inflation once it works its way into the system.”

But other economists insisted that while inflation is running about onehalf percentage point higher than it did for the past two years, it is in no danger of getting out of control.

“The inflation rate has stabilized at only a slightly higher level than last year,” said Jerry Jasinowski, president of the National Association of Manufacturers.

Consumer prices are rising at an annual rate of 3.2 percent, compared to 2.7 percent in each of the past two years, when inflationary pressures hit their lowest point in three decades.

While many analysts are forecasting that inflation will remain at the 3.2 percent level for the rest of the year, Jasinowski said that as growth slows further, there is a good chance inflation could actually moderate from the current level.

While financial markets want to believe the central bank has pulled off its vaunted “soft landing,” in which growth slows enough to contain inflation but not enough to bring on a recession, economists said the jury was still out.

The March increase in the CPI was the smallest since a similar 0.2 percent rise in December of last year. The CPI, which measures the cost of products and services to consumers, was up 0.3 percent in both January and February.

In March, energy prices dropped by 0.5 percent, their biggest decline since last September. The decrease was led by a 0.3 percent drop in gasoline prices, which analysts said was not likely to last given recent increases in world crude oil prices.

Food costs were unchanged in March after having risen by 0.3 percent in February. The moderation reflected a 3.9 percent drop in fruit prices and a 1.7 percent decline in vegetable prices as the price of tomatoes plunged by 19.4 percent.

The core rate of inflation, which excludes the volatile energy and food sectors, showed an increase of 0.3 percent in March, the same as in February.

Airline fares rose a sharp 3.4 percent in March and have been rising at an annual rate of 30.8 percent so far this year. The cost of an auto loan was up 3.5 percent and the price of a hotel room was up 1.5 percent.