Consumer Prices, Earnings Jump in February
Inflation poked up its head in February as U.S. consumer prices rose more than expected and earnings of American workers last month increased at the highest rate in more than a decade, two government reports showed Wednesday.
The February consumer price index rose 0.3%, with higher costs for fresh vegetables and natural gas contributing to the increase, Labor Department figures show. A month earlier, the CPI, the government’s main gauge of inflation, rose only 0.1%.
Average weekly earnings rose 2.4% last month, after adjustment for inflation and seasonal variations, following a revised decline of 1.7% the month before, the Labor Department said.
Treasury bond prices fell--pushing interest rates to their highest levels in six months--after the release of the report, as investors interpreted it as a sign that the Federal Reserve Board is likely to raise the overnight bank lending rate at its meeting next week.
February’s CPI increase suggests that “we might have an inflation problem,” said Madis Senner, director of global fixed income at Van Eck Global in New York.
Still, consumer prices outside of food and energy remained tame. And though the earnings increase exceeded the largest previous gain--a 2.3% increase in February 1982, according to a Labor Department spokeswoman--it was in line with analysts’ expectations.
The closely watched core rate of the CPI, which excludes food and energy prices, rose 0.2% in February after a 0.1% increase in January. Analysts had expected a 0.2% rise in the CPI and its core rate.
The annual price trend is also tame. For the first two months of this year, consumer prices rose at a 2.3% annual rate, down from a 4.0% rate in the first two months a year ago, a government spokesman said. The core rate rose at a 2.2% annual rate for the first two months, down from a 3.0% gain last year.
Even though a clear-cut inflation threat is lacking, the U.S. economy shows ample evidence of economic strength: a rebound in industrial production, robust retail sales and rapid employment growth.
That left investors, who were hoping for even better inflation numbers, disappointed.
“The bottom line is this is not bad data, just not as good as we had hoped,” said Ian Shepherdson, an economist at HSBC Markets in New York.
That view is being reflected in securities prices. The yield on the April federal funds futures contract traded at 5.43%, 0.18 percentage points above the Fed’s current target rate for overnight loans between banks.
And the yield on the Treasury’s benchmark 30-year bond rose to 6.98% from Tuesday’s 6.96%, the highest since Sept. 23.
Stocks fell, with the Dow Jones industrial average shedding 18.88 points to close at 6,877.68.
The latest consumer price report showed food prices rose 0.3% in February as the cost of fresh vegetables rose by the largest amount in almost two years. Beef, poultry and dairy costs were lower.
Energy prices also rose 0.3% last month, natural gas prices surged for a second month, gasoline prices showed little change and fuel oil prices dropped.
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Consumer Prices
Percentage change, month to month, seasonally adjusted:
February: 0.3%
Source: Bureau of Labor Statistics
