Inflation up, housing up

Led by higher energy prices, consumer prices rose sharply in March while both housing permits and housing starts rebounded modestly from recent lows.

The Labor Department reported that following a February gain of 0.4 percent, overall consumer prices rose 0.6 percent last month, the largest monthly increase in eleven months. On a year-over-year basis, prices rose 2.8 percent, the highest annual gain in seven months.


Energy prices rose 5.9 percent paced by a 10.6 percent increase in gasoline prices and a 3.5 percent gain in heating oil. Aside from energy, there were few other surprises - apparel fell 1.0 percent and medical care costs rose only 0.1 percent.

Food and beverage prices increased 0.3 percent while housing costs rose 0.2 percent, rent and owners' equivalent rent gaining 0.1 percent and 0.3 percent, respectively.

Core consumer prices, excluding food and energy, rose 0.1 percent in March following increases of 0.3 percent in January and 0.2 percent in February. This will be welcome news for the Federal Reserve as the increases of the last two months have caused a good deal of concern that core consumer prices would not moderate as expected.

On a year-over-year basis, the core rate stands at 2.5 percent, a continuation of the downward trend from last year's high of 2.9 percent, reversing the trend of the last two months.


Overall, this report indicates that the recent increase in energy prices has not yet impacted other consumer prices in a meaningful way, however, since gasoline and other energy costs have continued to rise since the cut-off date for the March report, absent any reversal in the weeks ahead, look for higher energy prices in the April report with other categories possibly being affected.

Housing Starts and Housing Permits

The Census Bureau reported a modest increase in the number of housing starts and permits for new construction during March. Starts increased 0.8 percent to a seasonally adjusted 1.518 million annualized rate following a rate of 1.506 million in February, downwardly revised from 1.525 million.

As is usually the case, the previous month's data was revised down with the announcement of the latest data making last month's change worse than initially reported and casting doubt on the current month-to-month change. On a year-over-year basis housing starts are down 23 percent.


Building permits rose 0.8 percent to a 1.544 million annual rate following February's 2.5 percent decline to 1.532 million, a figure that was not subject to revision. From year ago levels, permit issuance is down 26 percent.

The increase in building activity was stunning in the Midwest where construction surged 44.5 percent. Declines were seen in the rest of the country during March, activity in the West declining 7.7 percent and down 6.1 percent in the Northeast.

Along with the retail sales data released yesterday, these two reports were the most significant economic reports of the week, however, it's hard to come away thinking that anything has materially changed. The energy-driven increase to overall consumer prices was tempered by the lack of flow-through into non-energy goods and the overall construction figures were geographically inconsistent, likely still affected by volatile weather.