US inflation outpaces earnings, threatens spending

Washington: US consumer prices rose modestly in March amid signs a spike in gasoline costs was ebbing, but inflation still outpaced workers' earnings and threatened to undermine consumer spending.

The Labor Department said on Friday consumer prices increased 0.3 percent last month, a smaller increase than a month earlier and in line with economists' expectations.

Gasoline prices rose 1.7 percent, a sharp slowdown from February when costs at the pump rose more than three times as quickly.

Still, workers' earnings fell 0.4 percent last month after adjusting for higher prices. A separate report showed consumer sentiment slipped in April as higher gasoline prices hit household budgets.

"The underlying problem of inflation outstripping wage gains remains. That is the danger for the economy in the long run," said Joseph Trevisani, a market strategist at Worldwide Markets in Woodcliff Lake, New Jersey.

For the US Federal Reserve, the reports gave mixed signals about how much room there might be to take new measures to boost economic growth.

The possibility of a weaker consumer spending supports arguments for further stimulus, but the report on consumer prices suggested inflation might not cool as quickly as expected with

Core inflation, which strips out food and energy prices, climbed 0.2 percent, pushed higher by rising rents, medical care costs and used car prices.

In the 12 months to March, core CPI increased 2.3 percent after rising 2.2 percent in February. Barclays Capital said this reading could rise further this year.

The persistence of core inflation pressures could reduce the Fed's maneuvering room for easing policy, said Boris Schlossberg, head of research at GFT Forex in Jersey City.

The Fed has said it will probably hold interest rates super low until at least late 2014 to help the economy, which is limping back from the 2007-2009 recession.

The central bank is charged with keeping inflation low while promoting full employment. It's next policy meeting is scheduled for April 24-25.

Amid recent signs of weakness in the labor market, investors have been betting the Fed could unleash further monetary stimulus to boost growth, although comments by Fed officials this week suggested the central bank is on hold as it waits to see whether the recovery gains traction.

Consumers appear a little more anxious that they might be falling behind.

US government debt prices rose on Friday, while renewed concerns over Spain's rising borrowing costs and disappointing Chinese growth data pushed US stock prices lower.

Taking off some of the bite from high gasoline prices, electricity costs fell 0.8 percent in March, the steepest decline since June.

Food prices climbed 0.2 percent last month after being flat in February. Poultry prices posted their biggest gain since January 2008.

Overall consumer prices rose 2.7 percent year-on-year, down from a reading of 2.9 percent in February.

Bureau Report