All about business

U.S. consumer prices rose in March, driven by higher food and fuel expenses that indicate Americans will spend less on other goods.

The consumer price index climbed 0.3 percent, after no change the prior month, the Labor Department said today in Washington. So-called core prices, which exclude food and energy, increased 0.2 percent, also after no change. Both readings matched median forecasts in a Bloomberg survey of economists.

Inflation, combined with falling home values and mounting job losses, is leading to cutbacks in consumer spending that may push the economy into a deeper recession. Federal Reserve policy makers will likely lower the benchmark interest rate again this month as reviving growth remains their highest priority.

“Their primary focus has to be on the downside risk to growth,'' said Brian Bethune, director of financial economics at Global Insight Inc., in Lexington, Massachusetts. “There is very little ability for companies to pass on price increases.''

The Commerce Department reported separately that housing starts in the U.S. dropped twice as much as forecast in March to a 17-year low. Work began on 947,000 homes at an annual rate, down 11.9 percent from February and the fewest since March 1991.

Treasury notes were little changed, while the dollar fell to a record low against the euro and weakened versus the yen.

Economist Estimates

Monthly inflation estimates in a Bloomberg News survey of 78 economists ranged from gains of 0.2 percent to 0.7 percent.

Prices rose 4 percent in the 12 months to March, after a year-over-year gain of 4 percent in February. The core rate increased 2.4 percent from March 2007, after a 2.3 percent year- over-year gain.

Today's report showed energy expenses jumped 1.9 percent, the most since November, after a decrease of 0.5 percent the prior month. Gasoline prices rose 1.3 percent, fuel oil costs jumped 10.1 percent and natural gas prices were up 4.6 percent.

Energy costs continue to climb this month. Crude oil yesterday topped $114 a barrel, the highest since futures began trading on the on the New York Mercantile Exchange in 1983. The average cost of regular gasoline, which rose to $3.40 yesterday, is about 55 cents higher than a year earlier, according to AAA.

The consumer price index is the government's broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices that consumers pay for services ranging from medical visits to airline fares and movie tickets.

New vehicle prices dropped 0.1 percent and clothing costs declined 1.3 percent, the biggest decrease since 1998. Airfares rose 3 percent, the most since 2002.

Food Costs

Food prices, which account for about a fifth of the CPI, rose 0.2 percent after a 0.4 percent increase the previous month.

Rents which, make up almost 40 percent of the core CPI, increased in February. Owners equivalent rent rose 0.2 percent, compared with a 0.1 percent gain the month before.

The cost of medical care rose 0.1 percent for a second month.

The Fed has lowered its benchmark rate 3 percentage points since September, to 2.25 percent, and investors are betting officials will lower the rate by at least a quarter percentage point when they next meet on April 29-30. The cumulative decline in borrowing costs is already the biggest in two decades.

The threat of a recession overshadowed concerns about inflation when policy makers met last month. “Many participants thought some contraction in economic activity in the first half of 2008 now appeared likely,'' minutes of the Fed's March 18 meeting showed.

At the same time, policy makers considered that “readings on inflation had generally been elevated,'' according to the minutes. “On balance, most participants still expected inflation to moderate later this year and in 2009.''

Raw Materials Costs

Some companies are being pushed into passing higher raw materials expenses on to consumers. Southwest Airlines Co., the biggest low-fare carrier, said on April 11 it raised round-trip fares by as much as $12, following a larger rival for the first time in boosting prices after jet-fuel reached a record.

“We are up against record-breaking fuel costs,'' Marilee McInnis, a Southwest spokeswoman, said in an interview.

Price pressures are building. Producer prices rose almost twice as much as forecast in March, according to figures reported yesterday, and the cost of goods imported into the U.S. climbed a greater-than-forecast 2.8 percent.

The consumer-price and wholesale-price reports reflect differences in timing. In calculating wholesale prices, the government asks survey participants to report costs as of the Tuesday of the week that includes the 13th. Consumer prices are based on average costs over the entire month.

Sourse