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Consumer inflation cooled in February


Consumer inflation cooled last month, signaling some success in the Federal Reserve’s interest rate campaign and fueling speculation that policymakers have more leeway to slow the pace of increases in the wake of high-profile bank failures.

The Consumer Price Index (CPI) rose 0.4% in February from a month earlier, in line with forecasts, and rose 6% on a year-over-year basis, the Bureau of Labor Statistics (BLS) said on Tuesday. Price gains slowed from a 0.5% gain in January. That was the slowest annual pace since September 2021, slowing from 6.4% in January.

Core prices, which exclude variable food and energy costs, rose 0.5 percent last month, or 5.5 percent year-on-year. On an annual basis, they rose the least since December 2021. These numbers were also in line with market expectations.

Key findings

  • Prices, tracked by the consumer price index (CPI), rose 0.4% in February, or 6% year-on-year, the slowest annual pace since September 2021.
  • Core prices, which exclude variable food and energy costs, rose 0.5%, or 5.5% year-on-year
  • Increases in the cost of shelter and services were the main reasons for the price increase last month; food prices rose modestly, while prices for gasoline, used cars and trucks, and medical services fell
  • Cooling inflation could prompt Fed policymakers to slow rate hikes, if not stop them altogether, amid wave of high-profile US bank failures

Price earnings by category

Housing costs were the biggest driver of February’s price increase, accounting for more than 70% of the increase. They rose 0.8% last month and rose 8.1% year-on-year. Services inflation, which includes shelter costs, has outpaced goods inflation in recent months. The broader services index rose 0.6 percent last month and rose 7.3 percent year-on-year, well above the core rate.

Food spending rose 0.4% and rose 9.5% year-on-year, down from 10.1% in January. Although up, it marked the slowest annual rate since April last year. The Home Food Index, which tracks groceries and other consumer goods, rose 10.2 percent from a year earlier. The out-of-home food index, which tracks prices at restaurants and outdoor dining, rose 8.4%.

Energy prices eased, falling 0.6 percent from a month earlier and partially reversing a 2 percent rise in January. On a year-over-year basis, the energy index rose 5.1%, the slowest annual pace since February 2021. Gasoline prices, which hit records in the first half of 2022, declined year-on-year, falling 2% on annual basis. Fuel oil costs were higher, rising 9.2% from the previous year.

Other categories experiencing deflation last month included prices for used cars and trucks, which fell 2.8%, or 13.6% year-over-year, and the cost of medical services, which fell 0.7% and rose by only 2.1% year-on-year.

Implications for Fed policy

Progress in slowing inflation could lead Fed officials to slow the pace of rate hikes or halt them altogether. Fed funds futures published by CME Group now see rates between 5% and 5.25% through May, and traders now expect the FOMC to start cutting rates as early as June.

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.