Inflation Lacking Outside Energy

<a href=reuters.com>Reuters Wed April 16, 2003 08:57 AM ET By Tim Ahmann

WASHINGTON (Reuters) - A sharp rise in energy costs pushed U.S. consumer prices up in March but there was little sign of inflation pressures elsewhere in the economy, the government said on Wednesday.

The Consumer Price Index, the most popular gauge of U.S. inflation, rose 0.3 percent last month, the Labor Department said. However, excluding volatile food and energy prices, the CPI was flat -- the tamest reading on so-called core inflation since it was last unchanged in February 1999.

Economists polled by Reuters had expected the CPI to rise 0.4 percent and the core index to edge up 0.2 percent.

"This is more good news on the inflation front. This is a very, very benign number. It's a sign of price stability," said Richard DeKaser, chief economist at National City Corp. in Cleveland.

Labor said a 4.6 percent surge in energy costs accounted for more than 90 percent of the increase in the overall CPI.

While energy prices have risen at an annual rate of nearly 77 percent over the last three months as oil prices spiked, economists expect them to begin moving lower soon now that the war in Iraq is all but over.

The department said gasoline prices jumped 4.1 percent last month, while the cost of fuel oil gained 9.8 percent and natural gas prices rose 14.8 percent.

However, gasoline prices have moved down in recent weeks. According to a government report released on Monday, prices at the pump have fallen 13.3 cents to an average $1.595 a gallon from the record high reached four weeks ago, just before the start of the U.S.-led war against Iraq.

Patrick Jackman, an economist with Labor's Bureau of Labor Statistics, said based on Energy Department data, gasoline prices were likely to fall by about 8 percent in the CPI report for April, due out next month.

BARELY BUDGED

Closely watched core inflation has barely budged in recent months. Over the 12 months ended in March, it has risen just 1.7 percent, matching February's climb which was the smallest in 37 years.

The core CPI advanced at just a 0.8 percent annual rate in the first quarter, a sharp slowdown from the 1.9 percent increase registered last year.

"Smaller increases in the indexes for shelter and medical care, coupled with a larger decrease in the index for apparel, were largely responsible for the deceleration," the department said.

Clothing prices extended a long-term slide, dropping 0.4 percent last month. Medical care costs, which had risen sharply last year, gained just 0.2 percent. Shelter costs held steady for a second straight month.

Crude oil prices had risen sharply at the start of the year as a workers' strike in oil-rich Venezuela cut into supplies and worries mounted about the potential for further disruptions as the march to the Iraq war began.

However, prices began to slip shortly before the United States started bombing Baghdad.

Car prices rose just 0.2 percent last month, defying expectations among some economists for a sharp gain.

"There certainly was some discounting here still going on," Labor's Jackman said.

A report last week showed prices automakers received for new cars had risen 3.3 percent last month.