WASHINGTON • A key measure of underlying US inflation unexpectedly eased in February amid falling prices for autos and prescription drugs, giving the US Federal Reserve (Fed) more room to stick to its plan for being patient on raising interest rates.
Excluding food and energy, the so-called core consumer price index (CPI) rose 0.1% from the prior month and 2.1% from a year earlier, according to a Labour Department report yesterday. Those figures trailed the median estimates of economists.
The broader CPI rose 0.2% from January, the first increase in four months, though the 1.5% annual gain missed projections and was the smallest rise since 2016.
US stock futures and Treasuries rose yesterday while the dollar fell, as the data suggest there’s a greater chance that inflation won’t hold up around the Fed’s 2% objective — a development that would discourage policymakers from additional rate increases amid rising risks from weakening global growth.
The report is “certainly consistent with the view that we are going to be tracking at or below the Fed’s official goal”, said Scott Brown, chief economist at Raymond James Financial Inc in St Petersburg, Florida. “So, there’s no real pressure for the Fed to move anytime soon.”
Pressures from tariffs and wages have produced “mixed results in terms of firms’ ability to raise the prices of the goods and services they produce”, Brown said.
Fed chairman Jerome Powell made clear last Friday that he and his colleagues are in no hurry to adjust interest rates as growth slows and inflation stays subdued. “With nothing in the outlook demanding an immediate policy response and particularly given muted inflation pressures, the committee has adopted a patient, wait-and-see approach,” he said in a speech in California.
Responding to questions, Powell said inflation in the US is low, stable and doesn’t react much to slack in the economy. Policymakers will release updated quarterly projections for interest rates as well as inflation, growth and employment when they gather on March 19-20.
The Fed has a 2% target for a separate inflation gauge from the Commerce Department that’s linked to consumer spending. That index tends to run slightly below the Labour Department’s CPI, and January figures are due March 29.
The CPI report showed prices of new vehicles fell for the first time in four months, while used-car prices dropped 0.7% from January, the biggest drop since September.
Prescription-drug prices fell 1% on a monthly basis, the most on record, bringing the annual decline to 1.2% — the largest drop since 1972. Such figures give US President Donald Trump another opportunity to claim credit for lower pharmaceutical prices, an issue that he’s recently tweeted about several times.
Shelter costs, which account for about a third of CPI and mainly include housing expenses, continued to hold up, with the fourth straight monthly increase of 0.3%. Owners-equivalent rent, one of the categories designed to track rental prices, rose 0.3%, as did rent of primary residence.
The slowdown in overall inflation is giving Americans more spending power. Economists had forecast a 0.2% gain in the monthly core gauge and a 2.2% annual advance. — Bloomberg