February Inflation Report: Consumer Prices Inch Higher
The Consumer Price Index inflation report showed an overall increase in price increases in February, supporting the Federal Reserve’s decision to take a cautious approach in considering when and how much to cut interest rates .
Total inflation rose by 3.2 percent last month compared to a year earlier, compared to 3.1 percent in January. That’s down significantly from a high of 9.1 percent in 2022, but it’s still faster than the roughly 2 percent that was normal before the 2020 pandemic.
After removing volatile food and fuel costs to get a better sense of the underlying trend, inflation came in at 3.8 percent, slightly faster than economists expected but lower than January’s 3.9 percent .
How much that core metric rose between January and February was also a focus. The measure rose 0.4 percent month-on-month, slightly faster than economists had forecast, as air fares and car insurance rose, even as a closely watched housing measure rose less quickly.
Economists have been keeping a close eye on home prices and other measures of inflation in the services sector as they try to figure out how long it will take for inflation to fully return to normal levels. If these prove more persistent than expected, it could be a sign that completely eradicating inflation will be more difficult than policymakers had hoped.
So far, inflation has fallen steadily and relatively painlessly: unemployment continues to hover below 4 percent and growth has been unexpectedly strong in 2023, even as the Fed has raised interest rates to the highest level in more than two decades.
Fed officials have debated how long to leave rates at their current level, about 5.3 percent. Higher borrowing costs make it expensive for people to borrow to buy a home or expand a business, and that can weigh on the economy over time. While the Fed has tried to curb demand enough to get inflation under control, officials want to avoid crushing growth to the point of causing widespread job losses or a recession.
But some economists worry that slowing inflation over time could be more difficult than it has been to make progress so far. And Fed officials want to avoid cutting rates too early, only to find that inflation has not yet been fully suppressed.
“We don’t want a situation where it turns out that the six months of good inflation data we had last year turned out not to be an accurate signal of where underlying inflation lies,” said the Fed’s Jerome H. Powell. chairman, he said during his testimony before Congress last week. That’s why, he said, the Fed is being cautious.
But Mr. Powell also said last week that if the Fed is confident that inflation has fallen enough, “and we are not far from that,” it would be appropriate to cut rates.