After seven months of declines, gasoline prices rebounded in March and should propel the headline CPI index 0.4% higher. Pump prices are likely increased by 8.4% last month, or about 2% above a normal seasonal increase. Higher heating oil and electricity prices should also put modest upward pressure on the energy component. Food prices are projected to post a small increase. The Fed is clearly looking past the temporary effects of energy price movements and will be more interested in core inflation trends. After surprising softness in core readings in November and December, core CPI firmed up this year having posted two consecutive 0.2% increases in both January and February. Societe Generale expects this to continue, with another two-tick gain in March which would keep the yoy trend unchanged at 1.7%. Underpinning this forecast is expected continued firmness in used auto prices and in shelter costs, a rebound in public transportation and in medical care costs, and softer readings inapparel and furnishings. The FOMC appears to have a relatively low inflation hurdle and will be comfortable lifting rates as long as core inflation remains stable, provided continued progress in labor marekt and a rebound in activity data
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