WASHINGTON – Consumer prices last month shot up by the largest amount in nearly a year, driven by big increases in the cost of gasoline and other energy products.
The closely watched Consumer Price Index rose 0.6 percent in March, the biggest increase since a similar rise in April of last year. Energy prices surged by 5.9 percent last month, the largest one-month increase since September 2005, when Hurricane Katrina shut down Gulf Coast refineries.
However, outside of energy, many prices moderated last month; food costs slowed after two months of big gains that had reflected crop damage in winter growing areas.
Core inflation, which excludes volatile energy and food, posted a tiny 0.1 percent rise last month, the smallest increase in three months. It was better than the 0.2 percent rise that Wall Street had been expecting and should ease fears that this year's jump in energy prices will become embedded in higher prices for other products.
In other economic news, the Commerce Department said that construction of new homes posted a second consecutive monthly increase, rising by 0.8 percent to a seasonally adjusted annual rate of 1.518 million units. In February, housing construction rose by 7.6 percent.
While the March construction figure was helped by unseasonably warm weather, the government reported that applications for new building permits also rose during the month, increasing by 0.8 percent. It was the first such advance in three months.
The rise in inflation ate into workers' pay checks, with weekly earnings after adjusting for price increases declining by 0.1 percent in March. That was the biggest drop since a 0.3 percent decline in January. Over the past 12 months, inflation-adjusted weekly pay is up 1.6 percent, the smallest 12-month gain since last August.
The CPI report showed that prices for the first three months of this year are rising at an annual rate of 4.7 percent, far above the 2.5 percent price increase for all of 2006. The acceleration reflected this year's surge in energy costs, which are up 22.9 percent at an annual rate compared to a 2.9 percent for all of 2006, a year when prices soared at the beginning of the year but then retreated in the fall.
The average price for gasoline has surged by 71.1 cents over the past 11 weeks, according to a survey by the U.S. Energy Information Administration. A gallon of gasoline cost $2.876 on average nationwide last week.
The Federal Reserve has kept interest rates unchanged since last June when it pushed a key rate up for the 17th consecutive time in an effort to make sure that inflation did not get out of control.
Financial markets have been hoping that the sluggish economy would prompt the Fed to start cutting rates soon. But Fed officials continue to signal that they remain more concerned about inflation than they do weak economic growth.
For March, the moderate 0.1 percent rise in prices outside of food and energy was heped by a big 1 percent drop in clothing prices, the largest one-month decline in nearly six years.
The cost of medical care, often one of the areas showing the biggest increases, moderated in March, rising by just 0.1 percent. That reflected a 0.4 percent drop in prescription drug prices.