Inflation eased for an eighth straight month in February as a slowing rise in food costs offset a bump in gasoline prices and another spike in rent.
But price increases rose sharply again on a monthly basis, fueling concerns that a steady pullback in inflation at the end of last year has stalled.
Consumer prices increased 6% from a year earlier, down from 6.4% in January and a 40-year high of 9.1% in June, according to the Labor Department’s consumer price index.
That marked the smallest annual gain since September 2021.
On a monthly basis, though, prices advanced 0.4% following a 0.5% increase in January. Previously, monthly cost increases had slid to 0.1% to 0.2%.
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Core prices, which exclude volatile food and energy items and better reflect longer-term trends, increased 0.5% from January following a 0.4% bump in the previous two months. That lowered the annual increase from 5.6% to 5.5%.
Is the Fed going to keep raising rates?
All else equal, a resurgence of faster inflation might have led the Federal Reserve to approve a half-point interest rate increase next week after gradually moderating the pace of its hikes to a quarter point.
But some top economists say the collapse of Silicon Valley Bank and the risks to the financial system posed by other troubled regional banks could lead the Fed to pause its hiking campaign or lift rates by a quarter point at most.
“Though stress has spiked in the banking system, the Fed is still highly focused on taming inflation,” says Ryan Sweet, chief U.S. economist of Oxford Economics, who expects a quarter-point hike.
Ian Shepherdson of Pantheon Macroeconomics also expects a quarter-point increase, “assuming markets stay calm and no more banks fail.”
Despite the big monthly increase in consumer prices, economists still expect yearly inflation to resume its descent in the coming months. Goods prices generally have fallen as supply chain bottlenecks have improved and rent increases are expected to pull back.
Barclays predicts yearly inflation will slow to 2.9% by December, moderately above the Fed’s 2% target.
Fed Chair Jerome Powell has said he’s most concerned about “supercore” inflation, a new term to describe prices for underlying services, excluding housing, which he says are mostly fueled by pay increases and could be tougher to bring down.
Supercore inflation rose by 0.2% last month and is up almost 7% from a year ago.
Stocks are moving higher after the consumer price index was released. All three major U.S. indices rose between 1% and 2% as of 12:30 p.m. EDT. Stocks have been volatile over the last couple of days in the wake of the Silicon Valley Bank fallout.
In February, gas prices edged higher for a second month but they’ve fallen sharply since last summer amid concerns about a global recession and lower oil demand. Pump prices rose 1%. Nationally, regular unleaded gasoline averaged $3.47 a gallon Monday, down from about $5 in June, according to AAA.
Rent continued to be the biggest driver of inflation, surging 0.8% monthly and 8.8% over the past year. Economists expect rents to fall, based on new leases, but not until later this year.
And some of the recent pullback in goods prices reversed as prices for apparel and household furnishings both jumped 0.8%. Motor vehicle insurance increased by 0.9%. Airfares rebounded, rising 6.4% on strong traveler demand amid an easing pandemic.
Other prices are falling. Used car prices declined for the eighth straight month, dropping 2.8%. And medical care service costs decreased by 0.7%.
Will grocery prices go down in 2023?
Grocery prices are still climbing higher but more slowly, rising by 0.3% from January and 10.2% over the past year. The cost of commodities such as wheat and corn has fallen in recent months because of easing global demand.
In February, the price of eggs dropped 6.7% after a string of sharp bird flu-related increases but costs are still up 55% over the past year. Breakfast cereal prices fell 1.1%, rice declined 0.5% and bacon clipped 1.5%.
Some food costs continued to drift higher. Uncooked beef steak was up 1.2%; bread, 1.2% and processed fish, 1.9%.
Biden on inflation report
President Joe Biden touted the progress that’s been made in getting inflation down. “I will continue working to lower costs for hardworking Americans so they have a little more breathing room at the end of the month,” he said in a statement released Tuesday morning after the report was released.
“As I’ve long said, and as challenges in the banking sector remind us, there will be setbacks along the way in our transition to steady and stable growth,” Biden added.
Contributing: Elisabeth Buchwald