May 10, 2018 10:45 AM, EDT

Consumer Prices Rise Less Than Forecast as Autos Drop

David Paul Morris/Bloomberg News

U.S. consumer prices rose by less than forecast in April as costs for automobiles and airfares declined, reducing chances that inflation will run significantly above the Federal Reserve’s target in coming months.

The consumer-price index advanced 0.2% from the prior month after a March decline of 0.1%, a Labor Department report showed May 10, compared with the Bloomberg News survey median of a 0.3% gain. Excluding food and energy, the core gauge was up a below-forecast 0.1% from March — the least since November — and 2.1% from a year earlier, compared with projections for 2.2%.

Prices for used cars had the biggest monthly drop since 2009, and airfares fell the most in four years. The dollar fell after the report suggested inflation isn’t flaring up in a way that would be troublesome for policymakers, despite higher freight costs, a 17-year low in the unemployment rate and tariffs that are burdening businesses. The Fed is projected to raise interest rates in June for the second time this year, though officials were divided in March over whether three or four total hikes in 2018 were warranted.

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“This is a pretty soft print with a number of large declines,” said Omair Sharif, a senior U.S. economist at Societe Generale. “There’s no broad-based gain in inflation. It argues for the Fed sticking with the three-rate-hike type of plan.”

While rising gasoline prices are pinching Americans’ wallets, fuel is providing only a modest boost to the broad CPI, which rose 2.5% in April from a year earlier. Seasonally adjusted gas prices rose 3% in April from the previous month after a 4.9% drop in March, according to the report.

The core CPI reading brought the three-month annualized gain to 1.8%, the lowest since July, after 2.9%.

The shelter category rose 0.3% from the prior month after a 0.4% gain. Owners-equivalent rent, one of the categories designed to track rental prices, advanced 0.3%. Hotel and motel rates, which had posted an outsize gain in March, rose 0.8% in April.

Commerce Department figures released April 30 showed the Fed’s separate preferred gauge of inflation met policymakers’ 2% target in March for the first time in a year. The preferred core index, seen by officials as a better gauge of underlying inflation trends, was up 1.9% from March 2017.

Wages, which feed into inflation pressures, are growing only moderately even as the job market is tight. A separate report released May 10 by the Labor Department showed average hourly earnings adjusted for inflation rose 0.2% from April 2017.

Other Details

• Energy prices rose 1.4% from previous month after 2.8% decline; food costs advanced 0.3% after 0.1% gain

• Costs for new vehicles fell 0.5% after being unchanged the prior month; used-vehicle prices dropped 1.6%, most since March 2009, after a 0.3% decline.

• Airfares fell 2.7%, most since January 2014.

• Apparel prices increased 0.3% after falling 0.6%.

• Expenses for medical care rose 0.1%; these readings often vary from results for this category within the Fed’s preferred measure of inflation due to different methodologies.

• The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60% of the index covers the prices that consumers pay for services ranging from medical visits to airline fares, movie tickets and rents.

With assistance from Chris Middleton and Vince Golle.