Consumer Prices Post Largest Increase in Nearly Four Years

(Reuters) – Consumer prices recorded their largest increase in nearly four years in February as the cost of gasoline surged, but there was little sign of a broad pickup in inflation to trouble the Federal Reserve.

Other data on Friday showed factory activity in New York state moderated in March. That suggests overall manufacturing remained on a steady growth path, which should give the central bank no reason to scale back monetary support.

“I have my doubts whether the Fed is that concerned about inflation right now. The way the data has been playing out it gives them a free hand to be extremely aggressive to bring down unemployment,” said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut.

The Labor Department said its Consumer Price Index increased 0.7 percent last month, the largest gain since June 2009, after being flat in January. Gasoline accounted for about three quarters of the spike in consumer inflation.

Economists polled by Reuters had expected the CPI to advance 0.5 percent. In the 12 months through February, consumer prices rose 2.0 percent, the largest gain since October. They had increased 1.6 percent in January.

Fed officials are likely to dismiss the gasoline-driven jump in price pressures as temporary.

Policymakers meet next week to assess the economy and are widely expected to keep purchasing $85 billion in bonds per month in an effort to spur even stronger economic growth. The Fed has said it would keep up asset purchases until it saw a substantial improvement in the labor market outlook.

Gasoline rose 9.1 percent, the largest gain since June 2009, after falling 3.0 percent in January. Gas prices at the pump, however, have declined in the past two weeks.

Excluding food and energy, consumer prices rose 0.2 percent slowing from January’s 0.3 percent advance.

In the 12 months through February, so-called core CPI increased 2.0 percent, also the largest increase since October, after rising 1.9 percent in January.

There was little market reaction to the data.

Higher inflation last month eroded household purchasing power, which could hurt spending. Average hourly earnings adjusted for inflation fell 0.6 percent in February. They were up only 0.1 percent compared with a year ago.

A separate report from the New York Federal Reserve showed its “Empire State” general business conditions index slipped to 9.24 from 10.04 in February.

Despite the increase in headline in inflation last month, there was no broad acceleration in prices. Food prices edged up 0.1 percent after being flat in January. There is still no sign of a pass-through from last summer’s drought.

Housing costs maintained their steady rise. Owners’ equivalent rent, which accounts for about a third of the core CPI, rose 0.2 percent after a similar gain in January.

Apparel prices fell 0.1 percent after increasing 0.8 percent in January. New motor vehicle prices fell 0.3 percent after gaining 0.1 percent the prior month.

Prices for used cars and trucks rose for a second straight month.
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