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April 14, 2016 9:05 AM, EDT

Core Consumer Prices Cool, Signaling That Recent Pickup May Be Fading

National Retail Federation/YouTube

The cost of living in the United States excluding food and fuel rose less than forecast in March, bearing out Federal Reserve Chair Janet Yellen’s forecast that the recent pickup would prove fleeting.

The core consumer-price index increased 0.1%, the smallest gain since August, after consecutive 0.3% gains the prior two months, a Labor Department report showed April 14 in Washington. The median forecast of 81 economists surveyed by Bloomberg News called for a 0.2% gain. Including the volatile food and fuel categories, the index also rose 0.1%.

A modest rebound in energy costs and less appreciation in the dollar haven’t been enough to allow inflation to show sustained gains. Fed officials, already challenged by sluggish global demand prospects, may not be able to make a case for more immediate interest-rate increases as price growth has lingered below their goal for four years.

“We’re still importing deflation from other areas of the world,” said Brett Ryan, a U.S. economist at Deutsche Bank in New York. “The Fed’s not going to be in any hurry to hike again if there’s a soft inflation profile.”

Estimates for core consumer prices in the Bloomberg survey ranged from gains of 0.1% to 0.3%. At a year-over-year rate, core prices rose 2.2% in March after climbing 2.3% the prior month.

The increase in total prices was smaller than the 0.2% gain projected by the median forecast of economists surveyed by Bloomberg, which ranged from advances of 0.1% to 1.1% advance. The CPI climbed 0.9% in the 12 months ended in March after rising 1% in the year through February.

Another report from the Labor Department April 14 showed the number of Americans filing applications for unemployment benefits unexpectedly declined last week to match a more than 42-year low, indicating employers are confident the economy will work its way out of a soft patch.

Jobless claims dropped by 13,000 to 253,000 in the week ended April 9, equaling the level reached in early March as the lowest since December 1973.

The report on consumer prices showed energy costs increased 0.9% in March after dropping 6% a month earlier. Food costs fell 0.2%, led by a 0.5% drop in groceries that was the biggest since April 2009.

The core index was held back by declines in costs of clothing, airline fares, used cars and trucks and communications. Medical care also rose at a slower pace last month.

Apparel prices dropped 1.1% last month, the biggest decrease since September 1998, after surging 1.6% in February. Clothing was one of the categories behind the pickup in prices at the start of the year and the retreat bears out Fed Chair Yellen’s projection that some gains would be reversed.

Fed officials, who raised the benchmark interest rate in December for the first time since 2006, may find it difficult to support increases should inflation not pick up.

The central bank’s preferred price-growth gauge is the Commerce Department’s personal consumption expenditures measure, which hasn’t met the Fed’s 2% goal since April 2012.

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 prices consumers pay for services from medical visits to airline fares, movie tickets and rents.

The Labor Department’s gauge of wholesale prices, which includes 75% of all U.S. goods and services, unexpectedly decreased 0.1% in March. A separate report showed the cost of imported goods rose 0.2% last month, below the Bloomberg survey median forecast for a 1% increase.