U.S. Core CPI Rises Less Than Estimates, Easing Inflation Alarms

A key measure of U.S. consumer prices rose less than expected in February as costs of used vehicles, clothing and transportation services declined from a month earlier, suggesting broader inflationary pressures remain tame.

The core consumer price index, which excludes volatile food and energy costs, increased 0.1% from a month earlier and 1.3% from the prior year. The overall CPI rose 0.4% from the prior month and 1.7% from a year earlier, a Labor Department report showed Wednesday.

U.S. Core CPI Rises Less Than Estimates, Easing Inflation Alarms

The median estimate in a Bloomberg survey of economists for the month-on-month change in the CPI was for a 0.4% gain. The core measure was projected to rise 0.2%.

U.S. Core CPI Rises Less Than Estimates, Easing Inflation Alarms

Core inflation “is being buffeted around in an erratic fashion by the pandemic, causing strange movements in prices for a number of categories in any given month,” Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, said in a note. “One of the first signs of fundamentals returning will likely be when airlines and hotels start to nudge up their prices in the face of improving demand, an event that is probably at least a few months away.”

Stocks advanced in early trading, the dollar fell and the yield on the U.S. 10-year Treasury note rose slightly.

Yields on U.S. Treasuries have surged recently on inflation bets, but Federal Reserve officials have brushed off the concerns and expect any pickup to be transitory.

Investors and economists are split on the inflation outlook, with some predicting a wave of rising prices driven by stronger demand and pandemic stimulus, while others say the forces that have contained price pressures for years -- from technology to demographics -- are still in place.

Despite the softer-than-expected figures, inflation is poised to accelerate in the months ahead -- driven by pandemic stimulus, income growth and a vaccination campaign that’s helping businesses to reopen.

Starting with the March data, the so-called “base effect” will push up the headline rate, because sharp declines in prices at the start of the pandemic will influence the year-on-year calculations. That means even fairly small price increases during the month will likely cause the annual measure to jump above 2%.

Some pockets of the economy are already showing signs of bubbling inflationary 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.

Energy costs played a key role in boosting the overall CPI. Gasoline prices rose 6.4% in the month, and the index for electricity climbed 0.7%, which was the most in five months. Freezing temperatures across much of the U.S. -- most notably in Texas -- drove up demand for heat.

The government’s measure of shelter costs rose 0.2% from a month earlier, the most since July. Owners’ equivalent rent registered its largest gain in more than a year, reflecting higher housing prices.

The Biden administration’s $1.9 trillion stimulus bill will add to the more than $1 trillion in excess savings that American households racked up during the pandemic. It’s unclear how much of that money they’ll spend in the coming months on things they couldn’t do during the health crisis, like restaurant dining or travel.

The CPI report showed prices of goods, excluding food and energy, declined 0.2% in February from a month earlier, the first decrease since May. Core goods costs climbed 1.3% from a year ago.

Apparel and medical care commodities costs both dropped 0.7%, while prices of used vehicles fell 0.9% for a third month. Prescription drug prices fell by the most since July 2018.

Services prices minus energy rose 0.2%, the first increase in three months, reflecting higher shelter costs and medical care services. They were also up 1.3% from a year earlier.

U.S. Core CPI Rises Less Than Estimates, Easing Inflation Alarms

Digging Deeper

  • Food prices rose 0.2% from a month earlier and are up 3.6% from February 2020
  • Energy costs jumped 3.9% from January, the most since June
  • A separate report Wednesday showed inflation-adjusted hourly earnings increased 3.4% from February last year

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