US consumer prices declined unexpectedly in the 12 months through March, pushing back market expectations for a rate hike by the Federal Reserve.
The consumer price index (CPI) of goods and services declined 0.1 percent annually in March, down from zero in February, the Labor Department reported on Friday. A median estimate of economists called for another flat reading in March.
Compared to February, the CPI rate was 0.2 percent, unchanged from February, as increases in energy and shelter more than offset a decline in food products.
So-called core CPI, which strips away food and energy, increased 1.8 percent annually, up from 1.7 percent in February. On a monthly basis, the core CPI rate was up 0.2 percent, official data showed.
Food prices were down 0.2 percent on the month, but rose 2.3 percent annually. Gas prices were up 3.9 percent over February, but were down 29.2 percent compared to a year earlier.
The Federal Reserve’s preferred measure of inflation – the price index for personal consumption expenditures (PCE) – came in at only 0.3 percent annually in February. That was the 34th consecutive month inflation undershot the Fed’s target of 2 percent.
Federal Reserve Bank of Atlanta Dennis Lockhart said he wants to see both rising inflation and falling unemployment before the central bank begins raising interest rates.
“A murky economic picture is not an ideal circumstance for making a major policy decision,” Lockhart said on Thursday. “Falling unemployment and rising inflation may be unlikely in the very near term. In my working forecast, inflation does not pick up until the second half of the year.”
The Federal Open Market Committee (FOMC) kept its benchmark rate unchanged last month, as expected, but was divided on when to begin normalizing monetary policy. While several participants want to see rates increase in June, others wanted to wait until later. According to market analysts, the Fed is unlikely to raise interest rates before September.
Even with a rate adjustment, the federal funds rate is expected to remain very low for the foreseeable future, based on the FOMC’s “dot plot” summary of interest rate projections. The “dot plot” forecast showed that the federal funds rate would be at 0.625 percent by the end of the year, well below the December estimate of 1.125 percent.
The FOMC’s next rate meetings are scheduled for April 28-29 in Washington.