Energy Prices Bump up Inflation as CPI Rose 0.4 Percent in February

The Consumer Price Index rose 0.4 percent in February—the largest such gain since last April. Over the last three months, the CPI has averaged an annualized rate of inflation of 2.5 percent. Last month’s bump in the inflation rate was largely driven by energy prices, which rose 3.2 percent from January to February. Excluding volatile food and energy prices, the core CPI rose 0.1 percent in the month and has grown at a 1.9 percent annualized rate since November.

Within core consumer prices, medical care rose a modest 0.2 percent in February and at a 3.4 percent rate over the last three months. Continuing from last month, the difference between price inflation in medical care commodities and services has been stark. The price of medical care commodities jumped 0.8 percent in February—the largest single-month increase in 13 years.

By contrast, medical care services was unchanged in the month, including the second consecutive fall in the price of professional medical services of 0.2 percent. This is the first time that professional medical services has seen consecutive declines in price, and the 0.4 percent annualized rate of decline since November represents the first three-month fall on record. The price of hospital services was flat last month.

Elsewhere in core consumer prices, shelter prices rose 0.2 percent. A 1.9 percent increase in the price of lodging away from home added modestly to shelter prices overall. This category accounts for less than 2.5 percent of all shelter prices and less than 1 percent of the CPI.

By contrast, owners’ equivalent rent (OER) accounts for nearly 24 percent of the overall index and rose 0.1 percent in February. OER price inflation has moderated slightly in recent months, as prices rose at a 2.0 percent annualized rate over the last three months, compared with 2.1 the three months ending November and 2.5 percent over the three months before that.

The price of apparel fell 0.9 percent last month, reversing last months’ 0.9 percent rise. Over the last six months, apparel prices have grown at a 0.3 percent annualized rate, compared with 8.2 percent over the previous six months.

Finally, a 6.0 percent rise in gasoline prices led to a 2.1 percent jump in transportation prices overall. The price of used cars and trucks fell 0.2 percent and have declined at a 6.0 percent rate over the last six months while that of new vehicles rebounded 0.6 percent. As discussed in previous reports, the seasonal pattern of vehicle prices has been unusual this year, and the 1.6 percent annualized rate of increase in new auto prices since November follows a 2.0 percent decline in the three months previous to that and a 2.0 percent increase from May to August.

The Producer Price Index for finished goods rose 0.4 percent in February as finished producer energy prices rose 1.3 percent. Over the last three months, the price of finished goods has grown at a 1.5 percent annualized rate, while that of core finished goods has run at a 3.6 percent rate.

Inflation at earlier stages of production have not run as high over the same period. The price of core intermediate goods rose 1.0 percent in February and at a 1.9 percent annualized rate since November; that of core crude goods fell 0.3 percent last month and 0.9 percent annualized over the last three.

After climbing 5.6 percent from its July low, the real broad dollar has fallen the last two months. A falling dollar puts price pressure on U.S. imports from other countries and allows U.S. producers to raise prices on exports. Though this process is often slow, export prices rose 0.4 percent in February, including a broad 0.6 percent rise in core prices. Core export prices had been falling since September, so it is not clear that this jump is directly related to the fall in the dollar. Similarly, inflation in core import prices has been modest in recent months. February’s 0.3 percent rise in core import prices leaves prices down 0.1 percent since September.

Overall, this month’s report suggests moderating inflation. Disinflation in medical services in particular is encouraging, and the mild easing in rent prices along with low rates of inflation in intermediate and crude goods suggest that high inflation is not going to pose much of a threat. In the coming months, we may see a rebound in medical prices, but as high and rising health care costs represent the largest threat to the economy in the long run, we may hope otherwise. Insofar as a falling dollar results in higher trade prices, this can be expected to help domestic production and therefore reduce unemployment.