The cost of living in the U.S. excluding food and fuel rose 0.2 percent in March for a third month, signaling inflation is starting to firm.
The increase in the core consumer-price index reflected broad-based gains in rents, medical care, clothing and used vehicles, a Labor Department report showed Friday in Washington. The advance matched the median forecast of economists surveyed by Bloomberg. Including the volatile costs of food and energy, the index also rose 0.2 percent.
A strengthening labor market may be giving workers the confidence to seek bigger wage concessions, which would prompt companies to raise prices for goods and services. Federal Reserve policy makers want to see inflation on a trajectory toward their 2 percent goal as they weigh the timing of their first interest rate increase since 2006.
“Things are beginning to percolate,” Robert Sinche, global strategist at Amherst Pierpont Securities LLC in Stamford, Connecticut, said before the report. “By later this year, the Fed will have enough evidence that inflation is moving back toward their target to begin to normalize policy.”
Estimates for core consumer prices in the Bloomberg survey of 83 economists ranged from gains of 0.1 percent to 0.3 percent. On a year-over-year basis, core prices climbed 1.8 percent in March, the biggest 12-month advance since October, after rising 1.7 percent in February.
The forecast for CPI including all costs ranged from no change to a 0.5 percent increase, with the median at 0.3 percent. Consumer prices dropped 0.1 percent in the 12 months ended March after being little changed in the year through February.
Fed officials are monitoring inflation as they seek reasonable confidence in the trajectory of price growth toward their 2 percent target. The policy-setting Federal Open Market Committee was split at its meeting last month on the timing of lift off. Several participants wanted to normalize policy starting in June, while others favored later in the year, according to minutes of the March 17-18 meeting.
Disappointing payrolls data were among weaker-than-forecast economic reports since then that have cast doubt on expectations that the central bank will increase borrowing costs in June, making September more likely, according to economists surveyed by Bloomberg.
The Fed’s preferred measure of price pressures, linked to consumer spending, climbed by 0.3 percent in February from a year before, the Commerce Department reported last month. It hasn’t been at the central bank’s 2 percent goal since April 2012.
The Labor Department’s report showed costs for medical-care services climbed 0.4 percent, the biggest increase since August 2013. The category designed to track the rental value of owner occupied housing increased 0.3 percent, the most this year. The cost of clothing also advanced by the most this year, while the gain for used vehicles was the biggest since June 2011.
The increase in the headline price index was spurred by energy costs, which climbed 1.1 percent in March after increasing 1 percent the month before. Food costs dropped 0.2 percent.
Low inflation has been helping boost consumer buying power. Average hourly earnings climbed 2.2 percent in the 12 months ended in March, a separate Labor Department report showed Friday.
The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60 percent of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.
The Labor Department’s gauge of wholesale prices, which includes 75 percent of all U.S. goods and services, climbed in March for the first time in five months, reflecting higher costs for fuels and motor vehicles, according to data issued Wednesday.
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