Gas fuels consumer prices' rise

Labor Department: Index up 0.2% after 3-month slump

Shoppers pass an advertisement for retailer Bebe at Lincoln Road Mall, a pedestrian mall featuring stores and outdoor cafes in Miami Beach, Fla. A jump in gasoline prices helped push the consumer price index up in February.
Shoppers pass an advertisement for retailer Bebe at Lincoln Road Mall, a pedestrian mall featuring stores and outdoor cafes in Miami Beach, Fla. A jump in gasoline prices helped push the consumer price index up in February.

WASHINGTON -- A slight rise in gasoline prices and broad increases in other categories lifted consumer prices in February, a welcome sign after three straight months of declines that had pointed to low inflation.

The consumer price index rose 0.2 percent, the Labor Department said Tuesday, after having sunk 0.7 percent in January -- the biggest drop in six years.

Gasoline prices have plummeted since June, dramatically lowering inflation. They fell for seven straight months before rising 2.4 percent in February, the government said. Prices at the pump are still nearly 33 percent lower than a year ago.

Largely as a result, consumer prices were unchanged over the 12 months that ended in February after having slipped 0.1 percent in January compared with a year earlier. Excluding gasoline, prices have been more stable.

Outside food and energy, core prices also rose 0.2 percent last month. The cost of rent, clothes, new and used cars, and airfares all increased. Over the past 12 months, core prices have risen 1.7 percent.

Even with February's uptick in prices, economists expect the strong dollar to keep inflation in check in coming months because it makes imported goods cheaper. The dollar has risen sharply in value in the past year compared with the euro and yen, in part because the U.S. economy is growing faster than those in Europe and Japan.

If gasoline prices stabilize, the year-over-year inflation rate should eventually start to rise, probably by midyear, economists said. Paul Ashworth, chief economist at Capital Economics, predicts that core inflation will reach the Federal Reserve's 2 percent target in the first half of next year.

"It is too early to say inflation is turning higher," said Jennifer Lee, an economist at BMO Capital Markets. The dollar's strength "takes time to filter through to prices, and the recent increase will show up in coming months."

The persistence of consumer inflation well below the Fed's target rate has complicated the central bank's decision on when to raise the short-term interest rate it controls from a record low. Job growth has been robust, and the economy is expanding at a steady, if modest, pace. Normally, that would lead the Fed to raise its key rate from near zero, where it's been pinned since December 2008.

But price increases below the 2 percent target argue for postponing a rate increase. The Fed has chosen that target as a cushion against deflation.

After a two-day meeting last week, Fed policymakers said in a statement that it might be appropriate to raise rates after "further improvement in the labor market" and when they're "reasonably confident that inflation will move back to its 2 percent objective over the medium term."

That statement led many analysts to push back their estimate of when the Fed will raise rates until September or later. Some economists still expect the first increase to happen in June.

"You're going to see some floor built into prices," said Jacob Oubina, a senior U.S. economist at RBC Capital Markets LLC in New York. For the Fed, the report "will give them confidence that headline inflation will be near 2 percent in the medium-term, which is all they want at this point."

From June through January, gasoline prices fell 60 percent to a five-year low of $2.03 a gallon on average nationwide, according to AAA. The average rebounded to $2.33 by late February.

Some other trends are also keeping prices from falling. Rental-apartment vacancies fell to their lowest level in 25 years at the end of last year, according to Joseph Carson, U.S. economist for asset manager AllianceBernstein. That raised average rents 3.4 percent in 2014, the biggest increase in six years. That upward move is lifting core inflation.

Information for this article was contributed by Victoria Stilwell of Bloomberg News.

Business on 03/25/2015

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