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Consumer prices surge
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April 14, 2000: 12:12 p.m. ET
CPI posts biggest gain in 11 months, stoking inflation concerns
By Staff Writer Tom Johnson
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NEW YORK (CNNfn) - Consumer prices advanced at their strongest pace in nearly a year during March, the government reported Friday, stoking fears of inflation, which has remained largely absent from the U.S. economy during its prolonged growth spurt.
The Consumer Price Index, the government's main inflation yardstick, rose 0.7 percent last month, stronger than both its 0.5 percent increase during February and the 0.4 percent jump economists polled by Briefing.com expected.
The results marked the main index's biggest increase since April 1999, and the CPI's first-quarter gain of 5.8 percent was more than double the 2.7 percent gain during the same period last year.
Factoring out volatile food and energy prices, the core CPI rate climbed a more moderate 0.4 percent, but that still surpassed the 0.2 percent increase economists expected and marked the core rate's largest one-month increase in nearly five years.
In a separate report Friday, the Federal Reserve said industrial production grew 0.3 percent, a shade more than the 0.2 percent rise expected by economists.
 The CPI growth surprised investors, who had hoped for a replay of Thursday's Producer Price Index report, which showed relatively benign inflationary pressures at the wholesale level during March.
Economists said the spike in retail prices could be a temporary blip given that energy prices -- which accounted for more than half of the index's March increase -- were still peaking last month.
But economists still generally remained mixed about whether the new data might influence the Federal Reserve to be more aggressive in raising short-term interest rates when it convenes again next month.
"I think it is something that the Street has to take on board as potentially signaling that the Fed may do a little bit more," said Steve Ricchiuto, chief economist with ABN-Amro. "Definitely they are doing 25 [basis
points], but now the debate is whether they are going to do 50."
"There's always that danger that the Fed gets impatient here," Anthony Chan, chief economist with Banc One Investment Advisors, told CNNfn. "But I think that most of the Fed governors today feel that gradualism is the best policy, because if they err on the side of doing too much, the price of being wrong is not so high."
The Fed's decision will be made a bit easier by the fact that it next convenes to discuss inflation and interest rates on May 16, the same day the next monthly CPI report is released.
But regardless of what happens at that meeting, most economists still expect the agency to raise rates gradually throughout the year, although some, like Morgan Stanley Dean Witter Chief Economist Stephen Roach, hope the Fed makes a more aggressive move in May and then backs off for a while. (155K WAV) (155K AIF).
Investors spooked, once again
The possibility of the Fed taking an even more aggressive stance on rates certainly didn't sit well with investors.
Already reeling from a sharp sell-off this week, particularly in the technology sector, U.S. markets retreated even further Friday as investors pondered the possible new risk of inflationary pressures.
By late morning, the Dow Jones Industrial average tumbled 168.23 points, or more than 1.5 percent, while the Nasdaq Composite index shed 113.99, or 3.1 percent.
Energy prices jumped 4.9 percent during March, once again attributing for the bulk of the CPI's monthly gain. Gasoline prices showed an even steeper increase, rising 11.1 percent, and now have risen nearly 53 percent in the last 12 months alone.
Growth in the food index slowed somewhat, rising only 0.1 percent during March after a 0.5 percent gain during February. Housing prices slowed as well, posting a 0.4 percent gain during March after climbing 0.5 percent the month before.
Still, even factoring out the volatile food and energy prices, economists said the Fed would take note of the moderate gains seen across all categories that make up the CPI.
"The Fed has been worried that inflation would accelerate, but had not yet seen evidence of a 'smoking gun' that would clearly indicate the inflation climate had changed," said David Orr, chief economist with First Union Corp. "But with the report that March's core CPI jumped 0.4 percent from February, it's fair to say that the gun has smoked."
Separately, the government reported U.S. business inventories rose for the 14th consecutive month, climbing 0.5 percent during March. That result mimicked a similar gain during February, but fell short of the 0.7 percent increase economists anticipated, the Commerce Department reported. 
-- from staff and wire reports
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