Analysts still believe the Fed won't raise interest rates until September, but the new data suggests that prices are starting to go up as inflation begins to kick in after years of being dormant.
U.S. consumer prices increased for a second straight months mostly due to rising prices for gasoline as well as housing — and the news should encourage the Federal Reserve to stick with its plan to start raising interest rates in order to keep inflation in check as the economy recovers.
After many months of tumbling, gasoline prices are starting to show signs of starting to climb back up, pushing inflation closer to the 2 percent target the Fed has indicated is its ideal rate of price growth, according to a Reuters report.
The plummeting oil prices worldwide had kept inflation low, and without that effect as the American economy recovers, prices are expected to start ticking upward. The latest data suggests that prices are now moving toward that 2 percent target and the Fed will need to step in soon once they are at risk of passing that target.
The Labor Department reported on Friday that the Consumer Price Index had actually dipped 0.2 percent last month after posting a gain in February. The CPI dropped 0.1 percent for the 12 months ending with March.
Meanwhile, the core CPI, which eliminates the effect of food and energy costs, showed a 0.2 percent gain in March, which was similar to February numbers. In the last 12 months, the core CPI has jumped 1.8 percent.
Officials will consider increasing the interest rates in June at the Fed’s policy-setting meeting, but many analysts began doubting that would happen when the March labor report indicated that economic growth was slowing down from its breakneck pace. Analysts now think it is like the Fed will raise interest rates later in the year, although they agree it is coming.
Interest rates have been at near zero since the economic crisis began in December 2008.