US inflation inched up again in February
Consumer prices ticked up again last month, and economic markers show shoppers are adjusting their purchasing habits to offset the rising costs.
Prices rose 0.4% from January to February, higher than the previous month’s figure of 0.3%, the Labor Department said Tuesday. Compared with a year earlier, consumer prices rose 3.2% last month, above January’s 3.1% annual pace.
Excluding volatile food and energy prices, so-called “core” prices climbed 0.4% from January to February, matching the previous month’s rise and a faster pace than the Fed’s 2% inflation target. Core inflation is watched especially closely because it typically provides a better read of where inflation is likely headed.
Volatile items include gas prices, which jumped 3.8% just from January to February but are still below their level of a year ago. Airfares surged 3.6% after two months of much smaller increases.
“The core inflation is actually continuing to go lower,” said Xiaoyang Wang, a University of New Mexico economics professor. “”We are in the process of disinflation. Inflation is actually going down, but we are still in a mode of inflation.”
Wang said there were points in 2022 when inflation climbed as high as 9%.
Housing and rental costs, though, which tend to change more slowly, cooled in February: They rose 0.4% from January, slower than the 0.6% increase the previous month. Measures of new apartment leases, which have cooled, will likely feed into the government’s inflation data in the coming months.
New car prices ticked down 0.1% in February. Though these prices remain much higher than they were before the pandemic, they’re expected to decline further as more vehicles show up on dealer lots. Grocery prices were unchanged last month and are up just 1% from a year earlier.
Despite February’s elevated figures, most economists expect inflation to continue a slow decline this year. At the same time, the uptick last month may underscore the Federal Reserve’s cautious approach toward interest rate cuts.
“While inflation rates rose slightly in February, yearly inflation is still down nearly two-thirds since its peak. Our economy is rebalancing, but it remains the strongest in the world,” Sen. Martin Heinrich, D-N.M. and the chairman of the U.S. Congress Journal Economic Committee, said in a statement. “There is still work to do to lower costs for families. Child care, health care and housing are large burdens on families’ budgets, and I’m committed to working with my colleagues in Congress and with this administration to make them more affordable.”
Wang said the inflation experienced today still stems from the supply-chain shock during the COVID-19 pandemic. Many countries’ central banks pumped more money into the market.
“COVID-19 actually reduced our economic output. There was less economic output, meanwhile, there was more money available in the market,” he said. “So we had more money for less product ... and the result is an increase in the price level.”
The prices of some goods, from appliances to furniture to used cars, are actually falling after clogged supply chains during the pandemic had sent prices soaring higher. There are more new cars on dealer lots and electronics on store shelves.
Still, Fed Chair Jerome Powell signaled in congressional testimony earlier this month that the central bank is getting closer to cutting rates. After meeting in January, Fed officials said in a statement that they needed “greater confidence” that inflation was steadily falling to their 2% target level.
One factor that could keep inflation elevated is the still-healthy economy. Though most economists had expected a recession to occur last year, hiring and growth were strong and remain healthy. The economy expanded 2.5% last year and could grow at about the same pace in the first three months of this year, according to the Federal Reserve’s Atlanta branch.
Last week, the Labor Department said employers added a robust 275,000 jobs in February, the latest in a streak of solid hiring gains, and the unemployment rate stayed below 4% for the 25th straight month. That is the longest such streak since the 1960s.
Still, the unemployment rate rose from 3.7% to 3.9%, and wage growth slowed. Both trends could make the Fed feel more confident that the economy is cooling, which could help keep inflation falling and lead the central bank to begin cutting rates.
People living on a fixed income and employees with low bargaining power to negotiate a wage increase are most impacted by inflation, Wang said.
He said it appears consumers are changing their shopping habits to offset inflation. While the CPI is 3.2% higher than last year, the Personal Consumption Tax is about 0.5% lower than the CPI.
“Although we’re spending more per expenditure compared to before, we are buying less items,” Wang said.