Yearly inflation hits 3.2% in February
WASHINGTON — Consumer prices in the United States picked up last month, a sign that inflation remains a persistent challenge for the Federal Reserve and for President Joe Biden’s reelection campaign, both of which are counting on a steady easing of price pressures this year.
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 also climbed 0.4% from January to February, matching the previous month’s rise and a faster pace than is consistent with 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.
The market reaction was choppy early Tuesday but stock indexes rallied to record closes. The S&P 500 rose 1.1% to top its all-time high set last week. The Dow Jones Industrial Average gained 0.6%, and the Nasdaq composite jumped 1.5%. All three indexes started the day with losses after the inflation report was released.
“It’s a disappointment, but not a disaster,” Eric Winograd, U.S. economist at asset manager AB, said of the report. “The underlying details are more encouraging than the top-line number, which was boosted by a few volatile categories — the type of prices that tend not to repeat month-to-month.”
Those volatile items include gasoline prices, which jumped 3.8% just from January to February but are still below their level of a year ago. Air fares surged 3.6% after two months of much smaller increases. Clothing prices rose 0.6% after three months of declines but are unchanged compared with a year earlier.
“This will probably be seen as a reason to keep pol
icy on hold a while longer,” said Kathy Jones, Charles Schwab’s chief fixed-income strategist. “Through the vol- atility, the downtrend in inflation seems to be leveling off and the Fed would like to see it continue to move lower before easing rates.”
Housing and rental costs 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, are expected to feed into the government’s inflation data in the coming months.
Rent of primary residences, on the other hand, climbed slightly more quickly, at 0.5% on a monthly basis, compared with 0.4% in January. “I’m not concerned at all about the rebound,” Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives, said of the rent pickup. She said that together, the rent and owner’s rent measures were “telling a story of moderating shelter costs.”
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 slowly declining this year. At the same time, the uptick last month may underscore the Fed’s cautious approach toward interest rate cuts.
Voter perceptions of inflation are sure to occupy a central place in this year’s presidential election. Despite a healthy job market and a record-high stock market, polls show that many Americans blame Biden for the surge in consumer prices that began in 2021. Though inflationary pressures have significantly eased, average prices remain far above where they stood three years ago.
In his State of the Union speech last week, Biden highlighted steps he has taken to reduce costs, like capping the price of insulin for Medicare patients. The president also criticized many large companies for engaging in “price gouging” and so-called “shrinkflation,” in which a company shrinks the amount of product inside a package rather than raising the price.
“Too many corporations raise prices to pad their profits, charging more and more for less and less,” Biden said.
Overall inflation has plummeted from a peak of 9.1% in June 2022, though it’s now easing more slowly than it did last spring and summer. 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. There are more new cars on dealer lots and electronics on store shelves.
By contrast, prices for dental care, car repairs, and other services are still rising faster than they did before the pandemic. Car insurance has shot higher, reflecting rising costs for repairs and replacement. And after having sharply raised pay for nurses and other in-demand staff, hospitals are passing their higher wage costs on to patients in the form of higher prices.
Still, Fed Chairman Jerome Powell signaled in congressional testimony last week that the central bank is getting closer to cutting rates.
“Overall, the view that disinflation is in the economy — that is still intact,” said Kathy Bostjancic, chief economist at Nationwide Mutual, after release of the inflation report. “But it keeps them in a wait-and-see mode to really have that confidence that they should start 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. Since then, several of the Fed’s policymakers have said they believe prices will keep declining. One reason, they suggested, is that consumers are increasingly pushing back against higher prices by seeking out cheaper alternatives.
Most economists expect the Fed’s first rate cut to occur in June. When the Fed cuts its benchmark rate, over time it reduces borrowing costs for mortgages, car loans, credit cards and business loans.