Consumer Prices Edge Up but Set Off Few Alarms

U.S. consumer prices were relatively tame in February, although energy, transportation and housing prices ticked higher, setting the stage for a modest rise in interest rates by the Federal Reserve next week.

The Labor Department said Friday its consumer price index, the nation’s broadest gauge of inflation, rose a stronger-than-expected 0.5% in February after a 0.2% gain in January.

But excluding volatile food and energy components, the core rate rose by 0.2% after a matching gain in January--a sedate figure that buoyed financial markets.

February’s overall rise was slightly stronger than the 0.4% gain forecast by economists and was the largest jump since April of last year, when the index rose 0.7%. Economists had forecast a 0.2% rise in the core rate.

Economists took the data as a sign that the Fed was now highly unlikely to raise rates by half a percentage point at its Tuesday meeting, with most expecting a quarter-point rise.

Oscar Gonzalez, an economist at Boston’s John Hancock Financial Services, said that while the higher energy prices would hurt consumers in the short-term--making driving to the beach this summer more expensive--the overall inflation picture remains subdued.

“Despite February’s higher-than-expected overall CPI figure, the inflation picture at the core level is still benign, with no signs of any broad-based inflationary pressures,” Gonzalez said.

Indeed, he added, there may be a silver lining in the higher energy prices for the Fed as it attempts to cool the rapidly expanding U.S. economy.

“I don’t expect the CPI figures will cause the Fed to move more aggressively. Higher energy prices may actually make their job easier,” he said. “Just as plummeting energy prices two years ago fueled spending, skyrocketing [energy] prices today should chill spending and help cool an overheating economy.”

The overall CPI rose 3.2% in the last 12 months, the highest rate since December 1996. But the Fed, which has raised interest rates four times since June and has made clear it has not yet finished the job, will note that the core rate rose a more modest 2.1% in the last year.

February’s gains were largely driven, as in recent months, by increases in energy prices. Energy prices rose 4.6% in February, the strongest gain since April 1999, when they jumped 6.0%.

Higher energy costs pushed transportation prices up 1.3%, the largest rise since April’s 2.4%.

February’s data also showed a strong 0.5% rise in housing prices, the largest gain since January 1991, when it posted a 0.8% rise. Food prices rose 0.5% in February.

Gasoline prices advanced 6.3% nationwide in February, taking its increase to 41.2% over the last 12 months and leaving the gasoline index a mere 1.3% below its peak in November 1990 during the Gulf crisis.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Consumer Price Index

Monthly percentage change, seasonally adjusted:

*

February: 0.5%

*

Source: Bureau of Labor Statistics