The U.S. central bank lifted its overnight interest rate by a quarter of a percentage point in March and has forecast two more hikes this year.
"With oil prices rising in recent days and recovering almost all of March's losses on reports Saudi Arabia wants to extend production cuts enacted in January for another six months, monthly producer prices are likely to resume their upward trend", Reuters said.
The weak showing in CPI and retail sales caused the Atlanta Fed to revise lower its first-quarter GDP forecast to 0.5%.
There were also decreases in sales at building material stores, likely as bad weather halted work at construction sites.
"Some Fed officials will be disturbed by the unexpected drop back in core inflation, but this won't prevent a June rate hike", said Paul Ashworth, chief USA economist at Capital Economics in Toronto.
While sales at electronics and appliance stores jumped 2.6% from February, sales at vehicle and parts dealers paced down 1.2%, and purchases made at clothing stores dropped 1%.
Retail sales last month were dragged down by receipts at auto dealerships, which fell 1.2 per cent, decreasing for a third straight month.
Electronics and appliance stores saw the strongest increase from February. Retailers like J.C. Penney Co Inc, Abercrombie & Fitch and Macy's Inc are scaling back on brick-and-mortar operations.USA financial markets were closed for the Good Friday holiday.
The CPI nudging up 0.1 percent in February. Compared to a year ago, prices rose 2.4%, but still missed their 2.6% target, notching the smallest 12-month increase since November 2015, the latest sign that inflation pressures may be cooling. The so-called core CPI, which strips out food and energy costs, fell 0.1 percent, the first and biggest drop since January 2010, after rising 0.2 percent in February.
The cost of living in the USA declined in March for the first time since February 2016, showing inflation is moving up only gradually, a Labor Department report showed Friday. The year-over-year gain in the March core CPI was the smallest since November 2015. The annual gain in core PPI was 1.7%, down from January's 1.8%, while the Fed's preferred measure of inflation - the core personal consumption expenditures index - is now at 1.7%, still below its 2% target. In addition to a big 6.2 percent fall in gasoline prices, the cost of cell phone plans, new and used cars and clothing were all lower last month.
The National Bureau of Statistics (NBS) yesterday said that inflation dropped by 0.52 per cent in March, the second decline recorded on the year- on-year basis.
Still, consumers paid more for food and rents last month. The slowdown stemmed from a drop in the relatively volatile lodging away from home component (down 2.4 percent last month), but also an easing in owners' equivalent rent growth, which increased only 0.2 percent.
Food prices rose 0.3 per cent.