Inflation is expected to be flat for the month of March as gas prices declined from previous highs.
Gas prices fell from a high of $3.85 in February to $3.68 this week, which is expected to hold down the March Consumer Price Index, which tracks the average change in prices of goods and services purchased by households. Removing volatile gas and food costs, core inflation is expected to rise mildly by 0.2 percent.
“With energy prices coming off in general, we think it is going to be the predominate driver for why consumer prices are lower in March,” said Sam Bullard, an economist with Wells Fargo.
During the spring months, gas prices typically rise as suppliers switch from winter to summer gasoline formulas. Those higher prices were seen earlier in the year, and March inflation is expected to be lower than in years past.
Low inflation allows the Federal Reserve to continue their massive bond-buying program in the wake of weak jobs numbers. Last month, only 88,000 jobs were added and unemployment dropped to 7.6 percent as nearly half a million workers stopped looking for work.
The Fed said they would continue to buy $85 billion in mortgage-backed securities and treasuries each month until the employment situation improves, keeping borrowing costs near zero. Critics worry that the money flooding the economy could cause dangerous inflation in the long run, though there are no indications this will happen any time soon.
“The economy is behaving in such a lethargic fashion that despite all this money, we don’t have inflation,” said Peter Morici, professor of economic policy at University of Maryland.
First quarter U.S. Gross Domestic Product, the standard measure of a country’s economic output, grew at 2.8 percent. That rate is expected to slow to 2.2 percent over the next quarter because of political and economic challenges, said Bullard. This includes the budget standoff between President Obama and Congress as well as the pending debt ceiling debate this summer.
As fears of rising inflation ease, investors are moving out of the gold market. Gold prices plunged to a two-year low Monday. It was the second day of decline – an ounce of gold was down 7 percent to as low as $1,398 an ounce. Gold is typically touted as an inflation hedge, and, as U.S. prices remain muted, gold values are expected to decline.
“The last couple of years, people thought what the Fed’s doing is going to create a lot of inflation, and you’re seeing that not really come to pass at all,” said Scott Brown, chief economist at Raymond James & Associates. “Inflation trends are all pretty low at this point. Gold will continue to go down.”