US inflation data underpin Fed rates call

A key measure of inflation that strips out food and fuel edged higher in March in a development that will reassure Federal Reserve policy makers as they gauge when to raise interest rates.

Core consumer prices climbed 0.2 per cent last month, nudging the annual rate to 1.8 per cent from 1.7 per cent in February, according to figures released from the Labor Department on Friday.

The increase reflected rises in rents, medical care, clothing and used vehicles, statisticians said.

Headline inflation, which includes the effect of the weaker oil price, also rose 0.2 per cent on the month, but it was lower on an annual basis, declining 0.1 per cent in the 12 months ended March. That reflected an 18.3 per cent drop in the energy index.

The Fed is watching the inflation data for signs of firming as it prepares the ground for the first rate rise since 2006.

On Thursday Dennis Lockhart, the president of the Atlanta Federal Reserve, told the FT that he was leaning to a September lift-off in rates, rather than in June, amid softer economic data in the first quarter of the year.

However he said that unless there was a further appreciation in the dollar he was not "overly concerned" that there was going to be a further deterioration in core inflation readings.

There have been signs of firmer wage figures in parts of the country, which could add to confidence at the Fed that the economy is on track despite a disappointing set of job figures for March.

Stuart Hoffman, chief economist at PNC, said: "The stabilisation in inflation will give the Federal Open Market Committee the confidence to raise its Federal funds rate target later this year."

The Fed's preferred measure of inflation, the personal consumption expenditures index, rose 0.3 per cent in February. It has remained below 2 per cent, the Fed's target, since 2012.

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