WASHINGTON — The consumer price index fell in March for the first time in almost five years, the Labor Department reported Friday, providing a strong signal that the recession finally is causing inflation to abate.
The department's monthly report showed that consumer prices fell 0.1% last month after a modest 0.2% rise in January. Excluding volatile food and energy prices, the "core" inflation rate rose only 0.1% in March after a 0.7% jump the month before.
The March figures brought the overall pace of retail inflation for the first three months of this year to an annual rate of 2.4%--a marked slowdown from the 6.1% rise recorded in 1990 and the lowest such rate in several years.
The easing appeared likely to provide more leeway for the Federal Reserve Board to nudge interest rates lower. A similar report published Thursday showed that wholesale prices also fell sharply in March.
Friday's bullish report sparked a rally in the financial markets. The Dow Jones Industrial Average rose 15.34 points after publication of the price figures, closing at 2,920.79.
In a separate report, the Commerce Department said that business inventories edged down by 0.2% in February as sales recovered from a decline--a development that analysts hope will lead to increased orders and new production. Business sales rose 0.5% during the month.
The combination of figures provided another dose of good news for Bush Administration policy-makers. The White House has been urging the Fed to push interest rates down further to help spark an economic recovery.
"This tells us that the optimists on inflation were right after all," said analyst Roger Brinner of DRI/McGraw Hill, an economic forecasting firm in Lexington, Mass. "For a while, it seemed that the recession was not cutting into inflation. But now . . . we see the recession taking a point or a point and a half off the 'core' (inflation) rate. We see it back at an annual rate of 4% or less by summer."
Nevertheless, Brinner said, he sees "only one chance in three (that) the Fed will yield on this news and cut rates, and two chances in three they'll be stingy and wait."
But Bruce Steinberg, an economist with Merrill Lynch in New York, said he believes that the Fed will respond favorably to the inflation report and ease interest rates soon.
"We're beginning to see the moderation in inflation that a recession should produce," Steinberg said. "It's beginning to turn around now, and we should see inflationary momentum declining through the end of the year."
