U.S. core inflation accelerates as drag from phone costs fades

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USA consumer inflation dipped in March amid plunging gasoline prices, but the annual rate rose, suggesting a long-awaited uptick in price pressures could be drawing near, the Labour Department reported on Wednesday (Apr 11).

The prices of food and non-alcoholic beverages, which have the largest weight of 39% in the consumer basket, grew 2.3% on the year in March, from a 2.2% increase in February, the statistical office said in a statement. Energy costs, however, fell 2.1 percent as gasoline prices dropped 3.7 percent, the largest monthly decline since last May.

But with the labour market tightening, the dollar weakening and the stimulus from a $1.5 trillion income tax cut package and increased government spending still to impact on the economy, economists expect inflation will breach its target some time this year.

Meanwhile, cell phone service - which had been blamed for the bafflingly low inflation a year ago - finally showed the uptick analysts had predicted.

On Tuesday the Producer Price Index (PPI), a measure of inflation at the wholesale level, ticked up 0.3 percent, suggesting building price pressure among producers.

In annual terms, food prices rose by 4.1%, within which eggs became 27.0%, butter 14.2%, pasta products 11.1%, milk products 6.9%, milk 5.9% and bread 5.6% more expensive.

The IMF said in a report earlier that it expected inflation to fall to 12 percent by June and to single digits by 2019.

When you strip out food and energy from the March index, prices were up a modest 0.2 percent, in line with estimates.

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Economists had forecast the CPI unchanged in March and the core CPI rising 0.2 percent. Over the past year, consumer prices rose 2.4%, and core prices climbed 2.1%.

US wholesale prices increased 0.3 percent in March, driven higher by the largest increase in food costs in almost four years. That measure-the price index for personal consumption expenditures-shows inflation continues to run below the Fed's target but is not far off. For now the Fed has penciled in three rate increases for 2018.

But the CPI remains an important benchmark and the March price data could send jitters through Wall Street, where investors get skittish when faced with signs the Fed could raise interest rates more aggressively.

The core CPI's pickup will help reinforce the view of policy makers that inflation had been weighed down by transient factors such as the unusual weakness in the cost of wireless-phone services. Food prices edged up 0.1 percent after being unchanged in February. That likely accounted for the big jump in the annual inflation rate last month.

Healthcare costs increased 0.4 per cent, with prices for hospital care shooting up 0.6 per cent and the cost of doctor visits rising 0.2 per cent. Apparel prices fell 0.6 per cent after two straight months of robust increases.

There were also declines in the cost of telecommunication, used cares and trucks, tobacco and education.

That's not to say everything was cheaper last month.