The Economy

Core U.S. Inflation Rate Jumps 2.1% in March

"We expect a continued rise in inflation to prompt Fed officials to raise rates four times in total this year,” one economist says.
Matthew HellerApril 11, 2018

Core U.S. inflation rose at the fastest pace in a year in March, confirming the view of some economists that the Federal Reserve will raise interest rates four times this year.

The Labor Department reported Wednesday that the core consumer price index, which excludes food and energy prices, advanced 0.2% last month and, year-over-year, jumped 2.1%, compared with 1.8% in February.

That put the core CPI above the Fed’s 2% target for its preferred inflation measure, the personal consumption expenditure price index, which was up 1.8% in February.

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The March consumer price index dipped 0.1% in March, but year-over-year, it was up to 2.4% from 2.2% in the prior month.

The Fed has already raised rates once in 2018 and has indicated two more hikes are on the way this year. But Ian Shepherdson of Pantheon Macroeconomics is among the economists who now expect four moves.

“Fed hawks [will] point out to their colleagues that the core CPI rose at a 3% annualized rate in the first quarter, the fastest increase in 12 years,” he told MarketWatch.

“With underlying producer price inflation already at a seven-year high and the tightening labor market set to put upward pressure on wage growth, we expect a continued rise in inflation to prompt Fed officials to raise rates four times in total this year,” said economist Andrew Hunter of Capital Economics.

Last month’s CPI decline was entirely due to a 5% drop in gasoline prices. Food prices rose 0.1% while the cost of other major household expenses such as rent and medical care rose more sharply, as did prices for plane travel and auto insurance.

“Many analysts think the PCE will follow the CPI and soon hit the Fed’s 2% target,” MarketWatch said.

But Katherine Judge, economist at CIBC Capital Markets, remains skeptical. “Although core CPI is back above 2%, the slight monthly uptick in price pressures should still leave core PCE tracking a little below 2% and therefore does not change our view of the Fed hiking two more times over the remainder of the year,” she said.