WASHINGTON - A spike in gasoline prices drove a measure of U.S. retail inflation up in February by the most in more than three years. But outside the gain in fuel costs, inflation was mostly modest.
The consumer price index increased to a seasonally adjusted 0.7 percent last month from January, the Labor Department said Friday. It was the biggest monthly rise since June 2009.
“We don’t expect to see a sustained burst of inflation,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said before the report. “Price pressures are fairly subdued. Retailers don’t have the pricing power to pass along cost increases.”
Three-fourths of the increase in the index reflected a 9.1 percent surge in gas prices. That also was the largest monthly gain since June 2009. Gasoline prices had fallen in the previous four months. Since last month’s increase, gas prices have started to decline again.
For the 12 months that ended in February, prices increased 2 percent. That’s in line with the Federal Reserve’s inflation target.
Excluding volatile food and energy costs, core inflation rose just 0.2 percent in February. Over the past 12months, core prices have risen just 2 percent.
“Aside from the spike in gasoline prices, which is already being reversed, it is hard to find any evidence of major price pressures,” said Paul Dales, senior U.S. economist for Capital Economics.
Low inflation leaves consumers with more money to spend, which benefits the economy. It also allows the Federal Reserve leeway to keep interest rates low to help spur economic growth.
In February, total energy costs rose 5.4 percent. In addition to gasoline, prices for natural gas and home heating oil also showed big gains.
Food prices grew just 0.1 percent. Prices for fruits and vegetables jumped 1.4 percent jump. Meat, poultry and fish prices increased 0.5 percent. Most other food prices declined.
Prices for new cars fell 0.3 percent, the largest monthly decline in three years. Airline fares and clothing prices also fell. Monthly rents and used car prices increased.
Gasoline prices rose sharply in February after falling at the end of 2012. The national average price for a gallon of gas jumped from $3.42 on Jan. 31 to $3.78 on Feb. 28.
Since then, however, gas prices have fallen a bit. They averaged $3.70 per gallon Thursday, according to AAA’s Daily Fuel Gauge Report. In Arkansas, the average price per gallon Friday was $3.52.
An increase in gas prices also drove a measure of wholesale prices up in February by the most in five months. The government said the producer price index rose 0.7 percent last month. The index measures prices before they reach the consumer.
The unemployment rate is still high at 7.7 percent. As long as the inflation outlook stays mild, the Fed said it plans to keep the short-term interest rate it controls near zero until the unemployment rate falls to at least 6.5 percent.
The Fed will hold a two-day meeting next week and economists expect the central bank will keep its low-interest-rate policies unchanged.
Manufacturers increased production in February, according to a separate report released Friday.
Output at factories, mines and utilities climbed 0.7 percent, the most in three months, exceeding the median projection in a Bloomberg survey, according to data from the Federal Reserve in Washington.
“Manufacturing has been leading the recovery,” said Gus Faucher, a senior economist at PNC Financial Services Group Inc. in Pittsburgh. “That’s good news for the labor market, it’s good news for wages, it’s good news for consumer spending” because manufacturers pay above-average wages, said Faucher.
Business investment and lean inventories are spurring gains in output at companies such as Texas Instruments Inc. that will help propel growth.The pickup may enable the world’s largest economy to cope with across-the-board federal spending cuts, a payroll-tax increase and higher gasoline prices that are shaking household confidence.
Within manufacturing, which accounts for about 12 percent of the economy, output increased 0.8 percent after a 0.3 percent decrease in January. Factory production jumped by 1.3 percent in December and 1.7 percent the previous month.
The breakdown showed a 2.5 percent gain in production of business equipment, the biggest advance in three months.Output of construction materials and business supplies also increased in February.
“It looks like a pretty good quarter for manufacturing,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “Capital goods are doing well, autos came back a little bit and there’s strength in consumer goods. It’s looked pretty broad based.” Information for this article was contributed by Martin Crutsinger of The Associated Press and by Shobahna Chandra, Michelle Jamrisko and Lorraine Woellert of Bloomberg News.
Business, Pages 27 on 03/16/2013