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Consumer price index increases 0.4% in March

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CPI rises 3.5% year-on-year, biggest gain in six months

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Core CPI advances 0.4%; increases 3.8% year-on-year

By Lucia Mutikani

WASHINGTON, April 10 (Reuters) - U.S. consumer prices

increased more than expected in March as Americans paid more for

gasoline and rental housing, leading financial markets to

anticipate that the Federal Reserve would delay cutting interest

rates until September.

The third straight month of strong consumer price readings

reported by the Labor Department on Wednesday followed on the

heels of news last week that job growth accelerated in March,

with the unemployment rate slipping to 3.8% from 3.9% in

February. Fed Chair Jerome Powell has repeatedly said the U.S.

central bank is in no rush to start lowering borrowing costs.

The stubbornly higher cost of living looms large over the

Nov. 5 U.S. presidential election.

"The data does not completely remove the possibility of Fed

action this year, but it certainly lessens the chances the Fed

is cutting the overnight rate in the next couple months," said

Phillip Neuhart, director of market and economic research at

First Citizens.

The consumer price index rose 0.4% last month after

advancing by the same margin in February, the Labor Department's

Bureau of Labor Statistics said. Gasoline prices rose 1.7% after

increasing 3.8% in February. Shelter costs, which include rents,

rose 0.4%, matching February's gain.

Gasoline and shelter accounted for more than half of the

increase in the CPI. Food prices rose 0.1%, though grocery food

inflation was unchanged amid declines in the costs of butter and

cereals and bakery products, which recorded their largest

monthly decrease since 1989.

But prices for meats and eggs rose. There was a modest

increase in the prices of fruits and vegetables.

In the 12 months through March, the CPI increased 3.5%, the

most since September, also as last year's low reading dropped

out of the calculation. That followed a 3.2% rise in February.

The Fed has a 2% inflation target. The measures it tracks for

monetary policy are running considerably below the CPI rate.

Economists polled by Reuters had forecast the CPI gaining

0.3% on the month and advancing 3.4% on a year-on-year basis.

STALLING DISINFLATION

Though the annual increase in consumer prices has declined

from a peak of 9.1% in June 2022, the disinflationary trend has

virtually stalled in recent months.

Shortly after the data, financial markets pushed back their

expectations for the first rate cut to September from June,

according to CME's FedWatch Tool. They now expect only two rate

cuts instead of the three envisaged by Fed officials last month.

A minority of economists see the window for rate cuts closing.

The central bank has kept its policy rate in the 5.25%-5.50%

range since July. It has raised the benchmark overnight interest

rate by 525 basis points since March 2022.

U.S. stocks opened lower. The dollar rallied against a

basket of currencies. U.S. Treasury prices fell.

Excluding the volatile food and energy components, the CPI

gained 0.4% last month after a similar rise in February and

January. The so-called core CPI was boosted by a 0.5% increase

in rents after rising 0.4% in February.

Owners' equivalent rent (OER), a measure of the amount

homeowners would pay to rent or would earn from renting their

property climbed 0.4% after a similar rise in February.

There were also increases in the costs of motor vehicle

insurance, healthcare, apparel and personal care. But prices for

used cars and trucks, recreation and new vehicles fell. Core

goods prices fell 0.2% after edging up 0.1% in February.

Services excluding energy rose a solid 0.5% after increasing

by the same margin in February. In the 12 months through March,

the core CPI rose 3.8%, matching February's increase.