Prices rose in February, but there’s good news at the grocery store

Higher prices at the gas pump pushed inflation higher than expected in February, according to the latest consumer price index from the Bureau of Labor Statistics.

However, inflation remained subdued in other key sectors such as food and housing, indicating positive news for the Federal Reserve and consumers.

Overall, closely watched inflation gauges showed prices rose 3.2% for the 12 months ending in February, the BLS said Tuesday. that’s a little higher January’s annual reading was up 3.1%, and higher than economists expected.

On a monthly basis, CPI increased by 0.4% in February, as expected. This is the fastest pace since September.

“Inflation is like a winding track, it goes up and down with many ups and downs,” Sung Won Sohn, an economics and finance professor at Loyola Marymount University and chief economist at SS Economics, wrote on Tuesday. “Inflation rate rise supports Federal Reserve’s ‘slow’ stance on interest rate cuts.”

A sharp rise in gas prices and continued increases in shelter costs pushed inflation higher in February. Combined, these two categories were responsible for 60% of the monthly increase, the BLS said.

Excluding gas and food prices, categories that tend to be more volatile, “core” inflation rose 0.4% from the previous month, bringing its annual rate to 3.8%, slower than 3.9% in January.

Stocks rose on Tuesday morning as investors were pleased by easing inflation in some categories. The Dow rose 97 points, or 0.3%. The S&P 500 rose 0.5% and the Nasdaq Composite added 0.6%, both on pace to snap two-day losing streaks.

Aside from gasoline (up 3.8%) and related fuel and energy costs, some categories that saw the largest price increases included girls’ apparel (up 6.8%); eggs (up 5.8%); and airline fares (up 3.6%).

falling prices for dairy products and hospital services (both down 0.6%); and fruits and vegetables (down 0.2%).

Still, there was some good news for Americans: For the first time since April 2023, overall food prices did not rise. Grocery prices remained stable, while “food away from home” (restaurants) increased only 0.1% last month.

On an annual basis, overall food price inflation slowed to 2.2%, the lowest rate since May 2021. It is now getting closer to pre-pandemic norms.

“There’s certainly been progress,” said Mike Pugliese, senior economist at Wells Fargo.

“But I would emphasize that you just got back there,” he told CNN. “Food is volatile, and the Fed has very little control over it… but you want to see it hold up.”

Additionally, according to the CPI, gas prices are still cheaper than last year, down 3.9%.

“So far in March, gasoline prices have remained virtually unchanged, which, if sustained, will make energy prices a non-issue for the March CPI release,” Eugenio Aleman, chief economist at Raymond James, wrote Tuesday. ”

Persistently high shelter prices show progress, but pressures remain

There was also a slightly encouraging improvement in housing costs, which has been a key reason why inflation has remained high.

Shelter inflation declined to 0.4% from the previous month, after rising 0.6% in January. Annually, shelter prices increase by 5.7%, the lowest rate since July 2022.

“Shelter numbers are decreasing very slowly, but very rapidly, on a year-over-year basis,” Pugliese said.

The housing component of inflation has proven disappointing to economists and other observers because even though the government’s assessment of shelter costs – which has a time lag – remains high, private sources of recent data have shown a decline in rents over the past year. .

But two separate non-government measures of rents now show that rents are rising again, even reaching record highs.

According to Zillow, rents in February were nearly 30% above pre-pandemic levels, with the typical rent last month hitting $1,959. This is 3.5% more than a year ago.

Data from Redfin shows a similar pattern, with the average rent reaching $1,981 in February, a record high in its data. That’s up 2.2% from last year and the biggest annual gain since January 2023.

Although increased home construction has driven down rent prices in some cities, this has not happened everywhere, especially not in high-cost dense cities like New York or Boston. And, with mortgage rates remaining high for a longer period of time, more potential buyers are sitting out this spring home buying season and continuing to rent, pushing rents up.

“Mortgage rates rose again in February – a disappointing development for potential home buyers who got a glimmer of hope a few months ago as rates began to decline,” Redfin chief economist Daryl Fairweather said in a statement. “With rates still high, many people are choosing to continue renting, increasing rental demand and, as a result, increasing rental prices.”

Pugliese told CNN that the February CPI print is a “trading water” type of number.

“Not getting much better and not much worse,” he said.

That being said, there are other indicators that suggest “six months ahead, this trend will resume downward,” due to declining wage growth data and signs that price-hike appetites are waning. Are happening.

The latest NFIB Small Business Optimism Index, also released Tuesday, showed that 21% of survey respondents planned to raise prices, the lowest share since January 2021.

Fed members, and especially Chairman Jerome Powell, have said they want to see more “good data” before they start cutting interest rates.

As things stand now, the central bank will be in no rush to cut rates, certainly not at its policy meeting next week, and possibly not in May, Pugliese said.

“We still expect a rate cut this year,” he said. “Whether the exact time is May or June or July, I think there’s something realistic in that window.”

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