U.S. households suffered a second straight month of sharp rises in prices in February, undermining the Biden administration’s claims that policy is keeping inflation in check and dampening hopes for Fed rate cuts in coming months.
The consumer price index rose 0.4% in February, exceeding the rate of increase in January and marking the fourth consecutive month of increase. Compared to 12 months ago, the composite index is up his 3.2 percent, a bigger increase than the annual increase of 3.1 percent recorded in January.
Economists had expected a 0.4% month-on-month increase, but had expected the full-year figure to be one notch lower, at 3.1%.
The Federal Reserve said it was looking for data to give it more confidence that inflation has fallen to 2%. The rise in inflation in February casts doubt on the idea that the pace of price growth will continue to slow. The statistics raise the possibility that Fed officials will hold off on cutting interest rates until this summer or longer.
The core consumer price index, which excludes volatile food and energy prices, rose 0.4%. This was in line with January’s numbers and exceeded the consensus estimate of a 0.3% decline. Compared to a year ago, core prices rose by 3.8%. This is lower than January’s 3.9%, but higher than the expected 3.7%.
Core service prices, excluding energy-related services, rose 0.5%. This was in line with expectations and lower than the 0.7% recorded in January. For the year, core service prices rose 5.2%.
Prices of core goods had fallen last year, keeping overall inflation in check. Goods indexes excluding food and energy declined month-on-month from June to January. However, core goods prices rose 0.1% in February. This was not expected by most analysts. Compared to a year ago, commodity prices fell by 0.3%.
Core inflation was at 0.4% for the second straight month, suggesting that January’s rise was not an anomaly but a sign that underlying inflation pressures remain strong.
One bright spot in the report was that food prices were flat during the month. Food prices were flat after rising 0.4% in January. Restaurant prices rose 0.1%, slowing from January’s 0.5% rise.
Federal Reserve Chairman Jerome Powell said he is focusing on a portion of the index that has become known as “supercore” inflation, or core services excluding shelter. That was up 0.5% (0.47% without rounding), down from 0.85% in January, but still likely too high to reassure Mr. Powell.
House prices rose rapidly, with the shelter index rising 0.4% in the same month and 5.7% year-on-year. However, it has slowed down from January’s 0.6% rise. Rent inflation accelerated from 0.4% to 0.5%, but a measure called “owner rent equivalent” slowed to 0.4% from 0.6%.
