Energy, apparel help boost consumer prices 0.4% in February, easing deflation fears

Consumer prices rose in February by the largest amount in seven months as gasoline prices surged again and clothing costs jumped the most in nearly two decades.

But the increase appeared to ease the concerns in the minds of many economists about dangerous price movements in either direction. The recession is expected to dampen any inflation pressures for at least the rest of this year, while the slight uptick in prices over the last two months has made the possibility of deflation more remote.

The Labor Department reported Wednesday that consumer prices rose 0.4% in February, the biggest one-month jump since a 0.7% rise in July. Two-thirds of last month’s increase, which was slightly more than analysts expected, reflected a big jump in gasoline pump prices.

Core inflation, which excludes food and energy, rose 0.2% in February, also slightly higher than the 0.1% rise economists expected.

Falling prices, or deflation, sound good to consumers but can make a recession even worse by dragging down wages and clobbering already-stricken home and stock prices. Dropping prices are hurting businesses’ profits, forcing them to slice capital investments and lay off workers.

“Consumer inflation in the first two months of the year is starting to look more normal than the extremely depressed numbers” late last year, Michael Feroli, an economist at JPMorgan Economics, wrote in a research note.

Over the last 12 months, consumer prices have risen just 0.2%. That was up slightly from a reading of zero for the 12 months ending in January, which had been the smallest annual change in more than half a century.

Gas prices surged 8.3% last month after a 6% rise in January. Both gains came after several months of huge declines in prices at the pump.

Total energy costs rose 3.3% in February, almost double the 1.7% January rise. But energy prices were still down 18.5% from a year earlier. Home heating oil and natural gas prices both fell in February.

Clothing costs shot up 1.3% in February, the biggest one-month rise since a 1.5% increase in March 1990. The gain probably reflected a rebound from steep discounts offered in January as retailers were clearing store shelves after the worst holiday season in decades.

Food costs dipped 0.1% last month but were still up 4.7% over the prior year. Prices for meat and dairy products fell, while fruits and vegetables rose, according to the Labor Department report.

Separately, the deficit in the broadest measure of U.S. trade fell sharply in the final three months of last year as oil prices dropped and the recession reduced U.S. consumers’ demand for overseas goods. Economists expect the improvement in the U.S. current account to continue this year, mostly because of rapid falls in imports.

Exports also are falling as the global economy slows, eliminating what had been a crucial source of sales for U.S. manufacturers early last year.

The Commerce Department reported Wednesday that the current account deficit, which includes investment flows and other transfers as well as trade, fell to $132.8 billion in the final quarter of last year from a revised $181.3 billion in the third quarter. That was the lowest since the fourth quarter of 2003 and below what analysts expected. The deficit dropped 7.9% to $673.3 billion last year.

The U.S. finances the deficit by borrowing from foreigners, so a smaller deficit reduces the need for such borrowing.