WASHINGTON: US consumer prices increased solidly in February, with households paying more for gasoline, but underlying inflation remained tepid amid weak demand for services like airline travel and hotel accommodation.
The mixed report from the Labour Department on Wednesday did not change expectations that inflation will push higher and exceed the Federal Reserve’s 2% target, a flexible average, by April as declining COVID-19 infections and a faster pace of vaccinations allows the economy to reopen.
Inflation is also seen accelerating as price decreases early in the coronavirus pandemic wash out of the calculations. Many economists, including Fed Chair Jerome Powell expect the strength in inflation will not stick beyond the so-called base effects and the reopening of services businesses.
“Base effects and one-time price increases stemming from the reopening of the economy and some pass-through of higher prices from supply chain bottlenecks should lift core inflation to 2.5% in the spring,” said Kathy Bostjancic, chief US financial economist at Oxford Economics in New York.
The consumer price index increased 0.4% last month after rising 0.3% in January. A 6.4% advance in gasoline prices accounted for more than half of the gain in the CPI.
In the 12 months through February, the CPI shot up 1.7%, the largest rise since February 2020, after climbing 1.4% in the 12 months through January. Last month’s CPI readings were in line with economists’ expectations.
Gasoline prices surged 7.4% gain in January. Food prices climbed 0.2% last month, with the cost of food consumed at home gaining 0.3%. The cost of food consumed away from home rose 0.1%.
Excluding the volatile food and energy components, the CPI nudged up 0.1% after being unchanged for two straight months. The so-called core CPI was lifted by a surprise pick-up in rents as well as rising costs for recreation, medical care and motor vehicle insurance, which offset declines in prices for airline fares, hotel and motel rooms, used cars and trucks and apparel.
The core CPI rose 1.3% on a year-on-year basis, retreating from January’s 1.4% gain. The Fed tracks the core personal consumption expenditures (PCE) price index for its inflation target. The US central bank has signalled it would tolerate higher prices after inflation persistently undershot its target. The core PCE price index is at 1.5%.
Reports from the Atlanta Fed on Wednesday showed businesses’ one-year inflation expectations jumped to 2.4% in March from 2.2% in February. Its sticky-price CPI, a weighted basket of items that change price relatively slowly, jumped 2.3% in February after rising 1.1% in January.