The Labor Department reported that consumer prices surged 0.7 percent in February, the largest monthly increase in almost four years, as soaring gasoline prices combined with more modest increases in the cost of other goods and services. While annual inflation remains low at 2.0 percent, this could be the beginning of a more sustained trend of higher prices due, in part, to record money printing by the Federal Reserve.
The February surge follows two months of flat consumer prices in December and January and declining prices in November that were due, in part, to tumbling energy prices at the time.
After a decline of 1.7 percent in January, the overall energy index rose 5.4 percent in February, paced by an increases of 9.1 percent for gasoline (which accounted for three-fourths of the overall increase in consumer prices) and a 3.1 percent gain for fuel oil. On a year-over-year basis, these two commodities rose just 3.3 percent and 2.3 percent, respectively, as last year at this time, energy prices were also elevated.
Food prices rose just 0.1 percent last month and are now 1.6 percent higher than a year ago while core inflation (excluding food and energy) followed up a gain of 0.3 percent in January with an increase of 0.2 percent last month, now 2.0 percent higher than last year at this time.
The cost of apparel fell 0.1 percent last month after jumping 0.8 percent in January, but apparel prices are up 2.4 percent on a year-over-year basis, and housing costs continued to rise, up 0.2 in February and 2.3 percent higher than a year ago. New motor vehicle prices fell 0.3 percent after gaining 0.1 percent and used vehicle prices jumped 0.8 percent in February following an increase of 0.2 percent the month prior.
This report will generally be seen as benign and is not likely to alter the approach of the Federal Reserve toward monetary policy or alter investors’ view toward asset classes.
However, should energy prices remain elevated in the months ahead and should other consumer prices continue their recent rise, that may change – and it could change rather quickly.
Source: Iacono Research
