Rate of Inflation Slows; Prices Rise Just 0.3%

U.S. consumer price gains slowed in February as energy costs moderated, the government said in a report Wednesday, reinforcing views that U.S. interest rates would remain very low for a while.

The consumer price index, the most widely used gauge of U.S. inflation, climbed 0.3% in February after 0.5% the month before, the Labor Department said. Wall Street had expected a 0.3% monthly increase.

So-called core CPI, which strips out the volatile components food and energy, advanced 0.2%, the same increase as in January. Forecasters expected a 0.1% rise.

In annual terms, core inflation crept up to 1.2% for the year ended February, driven by new-vehicle prices and higher medical costs, economists said.

Very low core inflation last year sparked fears in the U.S. of deflation, such as in Japan, which has suffered multiple years of falling consumer prices.

Such concerns have since receded, but core prices are still watched closely by the Fed, which on Tuesday held interest rates at a post-1958 low of 1%.

The Fed also said “the probability of an unwelcome fall in inflation has diminished in recent months and now appears almost equal to that of a rise in inflation.”

Some Fed policymakers have noted that rising oil prices might at some point be a factor to take into account, and Wednesday’s CPI report said energy inflation advanced again last month after crude oil prices hit a post-Iraq-war high and remained well above $30 per barrel.

Energy costs, as measured in the CPI, rose 1.7% in February after jumping 4.7% in January.

Food prices were 0.2% higher after being unchanged in January, while the cost of apparel declined 0.1% after a 0.3% fall the previous month.

In a separate report, the Labor Department said real average earnings decreased by 0.1% in February, compared with January’s 0.3% rise.