U.S. consumer prices rose 0.3 percent in March, slightly less than expected as cheaper clothing helped hold down overall prices despite a modest rebound in energy prices, a Labor Department report on Wednesday showed.
Meanwhile, a separate government report said the number of home building projects started in March fell by 11.9 percent to a lower-than-expected annual rate while building permit activity, a sign of future construction plans was off 5.8 percent.
The rise in March prices was less than the 0.4 percent gain that Wall Street economists had forecast. Prices were flat in February. So-called core consumer prices that exclude food and energy were up 0.2 percent - in line with expectations - after also being unchanged in February.
U.S. stock futures edged up on the better-than-anticipated prices data as investors bet there was more room for the Federal Reserve to keep cutting interest rates to try to spur a slowing economy. The dollar lost ground on the prospect of more rate cuts.
Energy prices gained 1.9 percent in March after declining 0.5 percent in February. Costlier energy has been a major factor in rising concern about potential inflation, but it did not show through strongly in the March data.
Prices for apparel dropped for a second straight month, down 1.3 percent after falling 0.3 percent in February. The department said the March decline was the largest since September 1998, possibly a sign that retailers are being forced to cut prices to lure hard-pressed consumers into stores.
Housing costs were up 0.4 percent in March after gaining 0.2 percent in February. But food and beverage prices rose by a smaller 0.2 percent last month after a 0.4 percent February pickup.
The department said that in the first quarter this year, overall consumer prices rose at a seasonally adjusted annual rate of 3.1 percent, down from the 4.1 percent rise posted for all of 2007. Core prices in the first quarter gained at a 2 percent rate, under the 2.4 percent rise for all of 2007.
Housing Starts Fell
Meanwhile, the Commerce Department said housing starts set an annual pace of 947,000 units in March, lower than the 1.02 million expected by economists. The February starts figure was revised upwards to 1.075 million from the 1.065 million originally reported.
U.S. stock futures moved higher while the dollar fell and Treasuries pared losses as the weak data boosted expectations of further rate cuts from the Federal Reserve to bolster the economy.
"It's a dismal report...It challenges the proposition that construction has scraped bottom," said Richard DeKaser, chief economist at National City in Cleveland.
Building permits fell by 5.8 percent to an annual rate of 927,000, the slowest pace since a 916,000 rate set in April 1991. Economists polled by Reuters had forecast March permits at 970,000 after the 984,000 rate of February.
The home starts pace was the lowest since a 921,000 rate set in March 1991.