Consumer prices surge on energy costs

WASHINGTON — Consumer prices rose sharply in March, reflecting higher costs for everything from gasoline to clothes and hotel rooms. Perhaps most troubling, core inflation, which does not include energy and food, rose at the fastest pace in a year.

The Labor Department reported today that its Consumer Price Index rose by 0.4 percent last month, up sharply from the modest 0.1 percent gain in February. The extra price pressures were led by a big jump in gasoline prices.

With oil prices climbing to record levels above $70 per barrel this week, analysts said motorists should brace for more pain at the pump.

Excluding energy and food, core inflation rose by 0.3 percent in March, the biggest gain since a similar increase in March 2005. This acceleration reflected higher prices paid by renters, the biggest jump in clothing costs in seven years and a large increase in airline ticket prices.

Analysts said the increase in core inflation was worrisome because it was so widespread and could show that the relentless rise in energy costs is beginning to spill over into other areas.

"Any way you cut it, inflation was not well contained in March," said Joel Naroff, chief economist for Naroff Economic Advisors, a private consulting firm. "This was not a good report, especially if you are a member" of the Federal Reserve committee that meets eight times a year to set interest rates. The next one is May 10.

Stock prices edged lower today, one day after investors had pushed the Dow Jones industrial average up 194.99 points. The biggest gain in a year coincided with the release of Fed minutes from the March meeting that indicated the central bank soon could halt its long string of rate increases.

Economists said the Fed lately has emphasized that future rate actions would depend greatly on the economic data. Today's inflation report, economist said, showed that rising price pressures could cause the Fed to go further in lifting rates than just one more one-quarter of a percentage point increase expected in May.

"Today's report provides a signal, albeit noisy, that the long-awaited passthrough of higher costs to a wide range of consumer prices has arrived," said Kenneth Beauchemin, an economist at Global Insight, a forecasting firm.

Other analysts said it would take more than one bad inflation report to push the central bank to raise rates beyond May, especially with some Fed officials worrying they could overdo the rate tightening and cause the economy to slow too much.

"While the rise in core prices is a bit uncomfortably high, this stand-alone report is not evidence that soaring energy prices are feeding into other prices," said Sherry Cooper, chief economist at BMO Nesbitt Burns.

Through the first three months of this year, overall inflation has risen at a 4.3 percent annual rate, far above the 3.4 percent price increase for all of 2005.

The price acceleration reflected rising energy prices, which are up 21.8 percent at an annual rate through March, compared with a 17.1 percent rise for all of 2005.

Core inflation was up at an annual rate of 2.8 percent in the first three months of this year, slightly higher than the 2.2 percent increase for all of 2005.

The 0.4 percent overall price increase for March was the largest since a 0.7 percent gain in January. It reflected a 1.3 percent jump in energy prices following a 1.2 percent energy price decline in February.

The energy increase was led by a 3.6 percent increase in gasoline prices. Analysts said this week's spurt in crude oil prices to record levels would mean even higher gasoline costs as Americans move into the peak driving season. Some economists said gasoline could peak at $3.50 per gallon this summer.

Food costs in March edged up 0.1 percent, reflecting declines in the price of fresh fruits and vegetables.

The 0.3 percent rise in core inflation included a 1 percent rise in clothing costs, the biggest one-month jump in seven years.

Lodging costs were up, with rental prices rising by 0.4 percent and hotel rates increasing by 0.8 percent.

The price of new cars edged down by 0.1 percent last month but airline ticket prices jumped by 1.1 percent as the industry continued trying to recoup higher fuel costs by rising ticket prices.

In a separate report, the Labor Department said that average weekly earnings, after adjusting for inflation, dropped 0.3 percent in March. In February, real earnings rose by 0.4 percent.