WASHINGTON (AP) — U.S. consumer price increases from January to February still point to an elevated inflation rate that is posing a challenge for the Federal Reserve at a delicate moment for the financial system.
The government said Tuesday that prices increased 0.4% last month, just below January’s 0.5% rise. Yet excluding volatile food and energy costs, so-called core prices rose 0.5% in February, slightly above January's 0.4% gain. The Fed pays particular attention to the core measure as a gauge of underlying inflation pressures.
Even though prices are rising much faster than the Fed wants, some economists expect the central bank to suspend its year-long streak of interest rate hikes when it meets next week. With the collapse of two large banks since Friday fueling anxiety about other regional banks, the Fed, for now, may focus more on boosting confidence in the financial system than on its long-term drive to tame inflation.
That is a sharp shift from just a week ago, when Chair Jerome Powell suggested to a Senate committee that if inflation didn’t cool, the Fed could raise its benchmark interest rate by a substantial half-point at its meeting on March 21-22. When the Fed raises its key rate, it typically leads to higher rates on mortgages, auto loans, credit cards and many business loans.
In February, consumer prices climbed 6% from 12 months earlier, remaining far above the Fed’s 2% annual inflation target. Core prices in February rose 5.5% from 12 months ago, down slightly from 5.6% in January.
Nearly three-quarters of last month's price increase was driven by housing costs. But most economists expect rental cost increases to slow in the coming months as more apartment buildings are constructed and new leases are signed at lower price levels. Such a decline could further slow inflation.
Prices in the economy's sprawling service sector continued to accelerate last month. Restaurant prices rose 0.6% from January to February. Auto insurance jumped 0.9%, hotel costs a dramatic 2.3%.
Airfares, after easing for several months, soared 6.4% just in February and are up 27% from a year ago. The Fed is heavily focused on services, which are labor-intensive and whose price increases are driven in large part by higher wages. Labor shortages in many services industries have led to sharp wage increases.
Clothing costs rose 0.8% last month. New car prices ticked up just 0.2% for a second straight month. Used car prices fell 2.8%, the eighth straight monthly decline.
Food prices rose 0.3% in February, though they're still up more than 10% from a year ago.
The price of eggs, which have soared 55% from a year earlier, actually dropped 6.7% just in February.
Across the country, persistently high inflation is still pressuring many consumers.
Mani Bhushan, who owns four Taco Ocho restaurants in the Dallas area, has struggled to keep up with sharply higher prices for eggs, chicken, flour and black beans. He has also had to raise wages by about 30% to attract and keep the workers he needs.
“You get hit from every side,” he said. “We don't make much profit anymore.”
To cover his higher costs, Bhushan raised some of his prices last week after having done so four months ago. He plans to raise prices again in May unless food prices ease further.
For the Fed, it’s not yet clear whether it will keep raising rates at its next meeting to combat inflation.
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