US inflation dropped in March for the first time in more than a year on the back of falling auto and fuel prices, the Labor Department reported Friday.
While the annual trend in the Consumer Price Index was still upward, the monthly decline could reinforce the US Federal Reserve's plan to raise interest rates only gradually.
Meanwhile, falling auto sales helped drive down retail spending for the second consecutive month, even while sales remain well above the level recorded a year ago, according to a separate report from the Commerce Department.
Analysts had been expecting the CPI price measure in March to remain unchanged over the prior month, but instead it fell 0.3 percent, its first monthly decline since February 2016.
The index was still up 2.4 percent over March of last year, but that was slower than the 2.7 percent rise in February which was a five-year high.
The falling price of fuel was the largest contributor to the decrease last month, but even excluding the more volatile food and fuel categories, the so-called core CPI was still down 0.1 percent, the first monthly drop since January 2010.
Core CPI was up two percent year-over-year, slowing from 2.2 percent in the prior month, and the second straight decline.
Measures of inflation closely watched by US central bankers have been rising slowly since mid-2016 and the Fed has twice raised its benchmark interest rates since December to prevent inflation from getting too far beyond its two percent target.
- One soft month -
While central bankers have sometimes been divided on the amount of slack in labor markets and the near-term inflation risk, analysts agree the latest CPI data could support the views of those who favor a slow pace of increases in the benchmark lending rate as the economy continues to recover.
"With a soft March jobs report, weak inflation, and soft retail sales, we expect the Fed will be on hold until September," Jason Schenker of Prestige Economics said in an analysis.
Ian Shepherdson of Pantheon Macroeconomics called the monthly CPI drop "remarkable," attributing it to a coincidence of falling prices in numerous retail sectors, including wireless services, which dropped seven percent.
However, "One very soft month does not make a new trend," he wrote in a client note. "So we will be looking for a clear rebound in April."
On the outlook for the Fed's next move, he said, "Another month like March, though, and a June rate hike will become much less likely."
March also saw another contraction in retail sales, which fell 0.2 percent in the month, as US consumers shelled out $470.8 billion, according to a seasonally adjusted estimate.
The decline followed February's 0.3 percent drop and was a tenth of a point below an analyst forecast.
Year-on-year, March retail sales were up 5.2 percent over the same month in 2016.
Excluding the more volatile auto sector, which saw a 1.2 percent decline, retail sales in March were flat over February.
Despite the consecutive monthly declines, the auto sector still shows signs of strength. Sales for motor vehicle and parts dealers in the first quarter of 2017 are 5.4 percent higher than the same period last year and up one percent over the prior quarter.
Among the gainers, electronics and appliance stores had their best month in nearly two years, with sales volumes rising 2.6 percent. Clothing and accessory stores saw their fastest monthly increase since February 2016, up one percent.
So-called nonstore retailers, such as internet businesses, continued to rise, adding 0.6 percent in sales for the month, which put them up 11.9 percent over March 2016.
Jim O'Sullivan of High Frequency Economics said the details in March sales were more encouraging than the headline numbers.
So-called control sales -- which feed directly into GDP calculations and exclude gas station sales, bars and restaurants and building materials -- actually rose a solid 0.5 percent, he noted.
"As a result, the real data are stronger than the nominal data," he wrote in a client note. "We expect the pace to re-accelerate in Q2."