The Boston Globe

Inflation ticks up, underscori­ng Fed’s caution

- By Jeanna Smialek

Inflation sped up slightly in February on an overall basis, and a closely watched measure of underlying price increases was firmer than economists had expected.

The fresh data underscore­s that fully returning inflation to a normal pace is likely to be a bumpy process — and backs up the Federal Reserve’s decision to proceed carefully as officials consider when and how much to lower interest rates.

The consumer price index climbed 3.2 percent last month from a year earlier, up from 3.1 percent in January. That’s down notably from a 9.1 percent high in 2022, but it is still quicker than the roughly 2 percent that was normal before the pandemic.

After stripping out volatile food and fuel costs for a better sense of the underlying trend, inflation came in at 3.8 percent, slightly faster than economists had forecast. And on a monthly basis, core inflation climbed slightly more quickly than anticipate­d as airline fares and car insurance prices increased, even as one closely watched housing measure climbed less rapidly.

Taken as a whole, the report is the latest sign that bringing inflation fully down is likely to take time and patience.

“It just is going to underscore the Fed’s cautiousne­ss regarding the inflation outlook,” said Kathy Bostjancic, chief economist at Nationwide Mutual.

To date, inflation has come down steadily and relatively painlessly. Unemployme­nt continues to hover below 4 percent, and growth in 2023 was unexpected­ly strong, even though the Fed has raised interest rates to a more than twodecade high.

Fed officials have been debating how long they need to leave rates at their current level, about 5.3 percent. Elevated borrowing costs make it expensive for people to borrow to buy a house or expand a business, and that can weigh on the economy over time. The Fed has been trying to tamp down demand enough to bring inflation under control, but officials want to avoid crushing growth to the point that it leads to widespread job losses or a recession.

Some economists have been worried that it could be harder to slow inflation the rest of the way than it has been to achieve the progress so far. And Fed officials want to avoid lowering interest rates too early, only to find out that inflation is not fully quashed.

“We don’t want to have a situation where it turns out that the six months of good inflation data we had last year didn’t turn out to be an accurate signal of where underlying inflation is,” Jerome Powell, the Fed chair, said while testifying before Congress last week. Given that, he said, the Fed is being careful.

But Powell also said last week that when the Fed was confident that inflation had come down enough — “and we’re not far from it,” he added — then it would be appropriat­e to lower interest rates.

“Overall, the view that disinflati­on is in the economy — that is still intact,” Bostjancic said following the fresh inflation report. “But it keeps them in a wait-and-see mode to really have that confidence that they should start cutting rates.”

The Fed aims for 2 percent yearly inflation. It defines that goal using a separate but related inflation index, the Personal Consumptio­n Expenditur­es measure. That index incorporat­es some data from the consumer price index figures but comes out at more of a delay.

Some economists have questioned whether price increases will continue to fade smoothly toward the central bank’s target. If inflation for services — things such as housing and insurance — proves more stubborn than expected, it could make overall price increases more difficult to fully stamp out.

 ?? JUSTIN SULLIVAN/GETTY IMAGES ?? The consumer price index climbed 3.2 percent last month from a year earlier, up from 3.1 percent in January. That’s down notably from a 9.1 percent high in 2022.
JUSTIN SULLIVAN/GETTY IMAGES The consumer price index climbed 3.2 percent last month from a year earlier, up from 3.1 percent in January. That’s down notably from a 9.1 percent high in 2022.

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