US March CPI edges past forecasts, base effects boost core inflation

Consumer prices in the States dipped unexpectedly last month, but in the yearly comparison inflation still overshot economists' forecasts.

The US consumer price index slipped by 0.1% month-on-month in March, according to the Bureau of Labor Statistics.

Economists had projected that the headline rate of CPI would be unchanged on the month and up by 2.3% year-on-year, versus a reading of 2.2% in the month before.

At the 'core' level, which excludes the typically more volatile components such as food and energy, CPI was ahead by 0.2% month-on-month, pushing the year-on-year comparison higher by three tenths of a percentage point to 2.1%, as forecast by economists.

Boosting core inflation were so-called 'base' effects, as the 7% March 2017 drop in cellphone plan prices fell out of the yearly comparison.

More was to come, Ian Shepherdson at Pantheon Macroeconomics said, with further base effects set to lift the year-on-year rate of core CPI to 2.5% over the next four months - just as unemployment in the States moves towards a 50-year low.

"What matters, then, is whether this increase comes as a surprise to the public and materially raises peoples' inflation expectations," he said.

"It will take time for any shift in inflation expectations to become clear, but in the meantime we'd expect Fed hawks to point out to their colleagues that the core CPI rose at a 3.0% annualized rate in the first quarter, the fastest increase in 12 years. We expect the Fed to hike again in June, and in Sep and Dec too."

Analysts at TD Securities on the other hand told clients that: "Overall, firming core prices but lack of any meaningful upside is supportive of a continued but gradual pace of Fed rate hikes going forward.

"Rates: The report should lean further against expectations of a repricing for a faster path of rate hikes."