February consumer prices up

0.4% increase fueled by 2nd month of surge at gas pumps

Inflation rose modestly in February, nudged by an increase in gasoline prices that lifted the overall consumer price index by 0.4%.

Core inflation, excluding the volatile food and energy categories, rose by 0.1%, the Labor Department reported Wednesday. With the prospect of faster economic growth on the horizon, investors and market watchers have been paying close attention to the threat of heightened inflation, although it has yet to materialize for the most part.

The February advance in the consumer price index followed a 0.3% rise in January and was the largest advance since a similar 0.4% increase in August.

Over half of the 0.4% overall price increase in February came from a second monthly surge in gasoline prices, which rose 6.4% after a 7.4% jump in January. Gasoline costs have been climbing since December, reflecting rising costs of crude oil.

A survey by AAA found that the national average for gasoline has reached $2.77, a jump of 31 cents over the past month. The auto club predicted gas prices could keep rising to around $2.90 this spring. The last time gas prices got close to $3 a gallon was three years ago.

Consumer prices are up 1.7% over the past year, a still moderate performance for inflation which is running below the Federal Reserve’s 2% target for price increases. Core inflation is up just 1.3% for the past 12 months.

Still, financial markets have been roiled in recent weeks about worries that

inflation could suddenly start climbing at a faster rate, prompting the Federal Reserve to start raising its benchmark rate which has been at a record low since the pandemic hit a year ago.

Anticipation of the Biden administration’s $1.9 trillion stimulus package has intensified those worries, with some concerned that the money will pour fuel on an economy that is already poised to heat up as businesses reopen this spring and the pandemic recedes in the face of widespread vaccinations.

Some pockets of the economy are already showing signs of bubbling price pressures. In January, a measure of producer prices surged by the most in records dating back to 2009. The Institute for Supply Management’s factory measure of prices paid for materials rose to the highest since 2008 last month.

Fed Chairman Jerome Powell has sought to ease inflation worries by saying while prices will likely jump in coming months as the country continues to re-open, those gains should be temporary and not a sign that inflation is getting out of control.

That view is supported by private economists. Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, predicted that core inflation on a 12-month basis could rise as high as 2.5% this spring. “However, we share the Fed’s view that the rise will be transitory and will not represent the start of an upward spiral,” she said in a research note.

Over the long term, inflation is a concern because it erodes the value of assets, especially stocks and bonds. An uptick in bond yields in recent weeks, which correlate with inflation fears, helped prompt a sell-off on Wall Street, particularly among high-flying tech stocks.

The Labor Department report showed prices falling in a number of areas, with used car prices dropping 0.9% and clothing costs down 0.7%. New car prices were unchanged in February after having fallen in January.

Airline fares fell 5.1% while hotel room rates were down 2.3%. The travel industry has been hard-hit by the coronavirus.

(AP) A man pumps gasoline last month at a Shell gas station in Westwood, Mass. U.S. consumer prices in February saw their biggest increase in six months, the Labor Department said Wednesday.