Consumer prices up 2.3% from last year

NEW YORK (CNNMoney.com) -- Consumer prices in March rose at a faster pace on an annual basis amid higher utility costs, the government reported Wednesday.

The Consumer Price Index, the government's key measure of inflation, rose 2.3% over the past 12 months, driven by a 41% climb in gasoline costs during the period. In February, prices climbed 2.1% from the previous year.

The core CPI, which economists eye closely because it strips out volatile food and energy prices, was up 1.1% from a year earlier. In February, it inched 1.3% higher year over year.

March: Overall prices inched up 0.1% in the month, as rising costs for electricity were offset by declines in gasoline prices. The increase was in line with the 0.1% gain projected by economists. Prices did not budge in February.

Core CPI for the month of March was unchanged, compared to a 0.1% increase in February. Economists had forecast a 0.1% bump up.

"The rate of inflation was very low this month and still somewhat below the historical average," said Andres Carbacho-Burgos, an economist for Moody's Economy.com.

Historically, CPI stood between an annual rate of 2.4% to 2.5% and core CPI ran from 1.7% to 1.8% annually, he added.

The run-up in March CPI was driven in part by a 2.1% increase in electricity costs, which was offset slightly by a dip in home gas prices. Overall food prices edged up 0.2% during the month.

According to Carbacho-Burgos, the "abnormal" run-up in electricity prices could be related to "some unseasonable variation" in the price of coal, a key component in electricity creation, due to February's volatile weather.

Prices for new and used cars and trucks, airline fares and medical care costs were higher, with medical costs rising for the third straight month. Conversely, the costs for housing and clothing fell.

Interest rates: The low inflation supports the Federal Reserve's decision to keep its key interest rate near zero for some time. Recently, Fed Chairman Ben Bernanke has said that the economy is "far from being out of the woods."

Carbacho-Burgos says inflation doesn't look like a serious problem, even considering volatile energy. When the recovery gains full steam, he doesn't expect inflation rates to exceed normal levels. This should keep Fed policy stable for now.

"We don't see the Fed moving to stop inflation until year-end at the earliest, but they might hold off raising rates until the first meeting in 2011," said Carbacho-Burgos.