Americans are paying more for food and home rentals

Pushed by higher food and shelter costs, the consumer price index rose in March.

Americans are paying more for food and home rentals

World Bulletin / News Desk

Americans are spending a bit more money to buy food and pay rents, pushing inflation measures higher and easing policy makers concern about disinflation in the world’s largest economy.

A report by the Labor Department on Tuesday showed that the consumer price index rose 0.2 percent last month, after a 0.1 percent increase in February. For the year, prices have increased 1.5 percent, outpacing the 1.1 per cent gain seen in February.

The biggest gains in the index came from a 0.4 per cent rise in food expenses as drought conditions in producing regions, such as California, had an impact on the price of fruits, vegetables and dairy products. Beef and pork prices also jumped.

One area where costs went down was energy, which showed a 0.1 percent decrease in March from the previous month, according to the report.

Excluding volatile food and energy prices, so-called core inflation also came in a bit stronger than expected in March, with a rise of 0.2 percent. Higher shelter costs, including rents, accounted for nearly two-thirds of the gain in core inflation. The move comes as larger number of Americans has opted to forego home-ownership, boosting demand for rental properties.

The CPI is considered the broadest measure of price increases in the United States as it includes changes in the prices of goods and services, such as rents, medical bills, and hotel and airline tickets.

While lower costs and price-cuts are welcomed by most consumers, very low inflation levels can hurt long-term economic growth as it discourages spending. Sluggish job creation and slow economic growth, has prevented many retailers from passing on higher costs to final consumers, analysts said.

At 1.7 percent, the annual core inflation rate still stands below the Federal Reserve’s inflation target of 2 percent.

“Despite the surprising up-tick in March, the underlying inflationary backdrop remains very weak, reflecting the elevated level of slack in the US economy, particularly in the labor market, and diminished pricing power of retailers,” analysts at TD Securities USA said in a note to clients.

Still, the improvement in housing market conditions, in particular in the rental market, should contribute to price increases in the coming months, the analysts said.

TD Securities estimate that the pace of inflation should continue to converge back to the Fed’s target, with both headline and core CPI inflation moving back above the 2 percent year-on-year mark by the fourth quarter of 2014.

Central bank officials have expressed concern with low inflation levels even as they taper some of the aggressive stimulus measures in place to boost economic growth. As part of the unwinding of its quantitative easing program, the Fed is expected to buy $55 billion in Treasury bonds and mortgage-backed securities this month, down from $85 billion one year ago.

But thanks in part to low inflation, the central bank may not start rising benchmark interest rates until at least mid-2015.

Last Mod: 16 Nisan 2014, 11:37
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