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April 13, 2012

CPI data indicate inflation no threat to growth

April 16, 2012 – The federal government reported Friday that consumer price increases in March were mostly negligible, reinforcing the Federal Reserve's view that inflation does not pose a serious threat to economic growth at the moment.

The Bureau of Labor Statistics reported Friday that the overall consumer price index was up 0.3 percent in March on a seasonally adjusted basis. Gas prices, which were up 1.7 percent, were behind much of that gain, noted NAFCU Staff Economist Curt Long. "However, the increase in gas prices was tepid compared with the 6 percent increase in February."

Energy prices rose 0.9 percent in March, substantially less than the dramatic 3.2 percent increase in February. Food prices were up 0.2 percent, following no price change in February.

On a year-over-year basis, CPI growth rose 2.7 percent in March, down slightly from February's 2.9 percent pace. From March 2011, energy prices were up 4.6 percent, gas prices increased 9 percent and food prices were up 3.3 percent.

Core prices, which exclude food and energy costs, rose 0.2 percent in March, following a 0.1 percent increase in February. On a year-over-year basis, core CPI grew 2.1 percent, a slight decrease from February's rate of 2.2 percent.

Despite a strong hiring season during the winter, wages have barely outpaced inflation, Long said. "And as a result, retailers have little leeway to pass on price increases to consumers."

The economist added that current price levels leave room for another round of quantitative easing if Federal Reserve officials deem such action necessary. "However, that is unlikely to happen as long as the economy continues its slow improvement."

For more details, see the NAFCU Macro Data Flash on March's CPI (login required).

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