By Chris Cermak

WASHINGTON (MNI) – A moderation in gasoline price gains should have
eased the pace of U.S. consumer prices in March, according to consensus
estimates that were bolstered by lower-than-expected producer price data
Thursday.

MNI’s survey of economists forecasts CPI rose 0.3% last month,
which would be down slightly from 0.4% in February. Headline PPI was
unexpectedly flat as tough seasonal adjustments held down energy prices,
according to the Bureau of Labor Statistics. The year-over-year PPI
increase dropped to 2.8%, the lowest since June 2010.

Already-high U.S. gasoline prices rose more moderately last month,
from $3.849 per gallon on March 5 to $3.996 on April 2, according to
Energy Information Administration data, but that compares to a stronger
rise from $3.50 on Jan. 30.

Core PPI rose 0.3% in March, more than expected after a 0.2% gain
the previous month and putting year-over-year at 2.9%.

Barclays’ Peter Newland wrote in note reacting to the March PPI
data that “the apparent stabilization in core producer price inflation
for finished consumer goods is broadly consistent with our view that
core goods prices will not be a drag at the CPI level in the coming
months.”

He added that this, alongside persistent gains in the more
heavily-weighted core services components, “will lead to a further
gradual increase in core CPI inflation.”

Barclays said it still expects a 0.2% increase in the core CPI in
March and a 0.3% rise in the overall index.

Jefferies economist Tom Simons in a note Thursday said the
unchanged PPI reading, combined with higher than expected weekly initial
claims of 380,000, “will add more fuel to the fire for the debate over
QE3.”

The PPI energy index fell 1.0%, led by a 2.0% decline in gasoline
despite an unadjusted 7.5% gasoline price increase. Jacob Oubina, senior
economist with RBC Capital Markets, said seasonal adjustments in March
and moving into the summer should bite into the energy gains in both the
producer and consumer indices.

“The seasonal hurdle for the energy component is actually pretty
high,” Oubina told MNI. RBC had forecast a 0.1% decline in headline
producer prices.

Oubina also suggested the recent shift to a more downcast global
economic outlook could begin to pull down gasoline prices, despite
recent major inventory draws that have signalled limited supply.

The EIA Tuesday said it expects gasoline to peak at $4.01 in May
and remain close to $4 per gallon through the summer, though it also
reported a much larger than expected draw in gasoline stocks Wednesday
of 4.3 million barrels.

Core prices for CPI are forecast to increase 0.2%, according to
MNI’s survey, after adding only 0.1% in February, pushing the
year-over-year CPI increase down to 2.2% from 2.3%.

Manufacturing price gains appeared to be relatively steady in
March. The Institute for Supply Management’s manufacturing survey showed
its prices paid index at 61.0, down slightly from 61.5 in February. The
ISM non-manufacturing survey showed price gains easing more drastically,
down 4.5 points to 63.9 in March.

Federal Reserve officials have continued to show little concern
that inflation is gaining momentum, with most noting they expect
headline price gains from energy to be temporary.

The Fed’s Beige Book Wednesday said “overall inflation was modest”
though March, though it also noted that “contacts in many Districts
commented on rising transportation costs due to higher fuel prices.”

Economists at Credit Suisse have forecast some upward pressure on
core CPI could come from the auto sector. MNI’s Reality Check Wednesday
reported used car prices have been surging recently, due to supply
shortages. Compact and hybrid models have seen the biggest increases
given the recent gas price hikes.

CPI will be released Friday 8:30 a.m. ET by the Bureau of Labor
Statistics.

— Chris Cermak is a Washington reporter for Need to Know News

** MNI Washington Bureau: 202-371-2121 **

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