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February US Inflation Rises More than Forecast

Posted by Joseph Trevisani on Mar 24, 2015 1:01:00 PM

Overall consumer prices rose in February for the first time in four months as gasoline prices rebounded from eight months of decline, helping the annual price change recover from its first non-recessionary drop on record. 

The cost of living climbed 0.2 percent in the month, matching forecasts and reversing January’s 0.7 percent drop, according to the Labor Department in Washington D.C. today. Prices had fallen for the prior three months, the first time since the recession of 2008-09. On the year prices were unchanged from last February, an improvement on January's 0.1 percent fall which had been projected to continue.  

The core consumer price index, which excludes food and energy costs, rose 0.2 percent in February as it did in January, considerably stronger than the -0.1 percent estimate. Year over year core CPI gained 0.1 percent to 1.7 percent in February. It was the first rise in the annual rate since October. 

The Federal Reserve has cited the persistence of inflation below its the 2 percent target as one on its major considerations in deciding when to hike the Fed Funds rate. The central bank is contemplating its first rate increase in eight years.

Last Wednesday’s relatively dovish FOMC statement and press conference by Fed Chair Janet Yellen seemed to push 'rate normalization' into the fall even though the central bank cleared the way for a rate increase by ending its 'patient' characterization on timing.  

Today's stronger than expected core CPI rate, while not the Fed's preferred inflation measure, should give the governors a measure of confidence that their long voiced prediction that inflation will "over time” return to the 2 percent target may finally be occurring.  Fed officials have said they need to be "reasonably confident" that price growth is trending toward their goal before they increase the benchmark Fed Funds rate.

The February core PCE deflator, the Fed's chosen measure of price changes, will be released this coming Monday, March 30th at 8:30 am; 0.1 percent is forecast for the month and 1.3 percent for the year. 

Energy costs surged 1 percent in February after declining for seven consecutive months. The price of a gallon of West Texas Intermediate crude oil averaged $50.72 for the month, 7.2 percent higher than the $47.33 average in January.

The more than 50 percent decline in oil prices since last summer has translated into lower energy costs for consumers.  But those reduced prices and the boost they have given to discretionary income have not transferred into increased consumer spending. Retail sales have decreased for three straight month through February. 

The average cost of a gallon of regular gasoline was $2.24 in February compared with $2.10 the prior month, an increase of 6.7 percent according to the American Automobile Association. It averaged $2.42 yesterday. 

The Labor Department’s food price index rose 0.2 percent in February.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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core cpi march 24

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