WASHINGTON – A spike in gas prices drove a measure of U.S. consumer costs 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 a seasonally adjusted 0.7 per cent last month from January, the Labor Department said Friday. It was the biggest monthly rise since June 2009.
Still, three-fourths of the increase in the index reflected a 9.1 per cent surge in gas prices. That was also the largest monthly gain since June 2009. Gas prices had fallen in the previous four months. Since last month’s increase gas price have started to decline again.
For the 12 months that ended in February, prices increased 2.0 per cent. That’s in line with the Federal Reserve’s inflation target.
Excluding volatile food and energy costs, core inflation rose just 0.2 per cent in February. Over the past 12 months, core prices have risen just 2 per cent.
“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 per cent. In addition to gasoline, prices for natural gas and home heating oil also showed big gains.
Food prices grew just 0.1 per cent. Prices for fruits and vegetables jumped 1.4 per cent jump. Meat, poultry and fish prices increased 0.5 per cent. Most other food prices declined.
Prices for new cars fell 0.3 per cent, the largest monthly decline in three years. Airline fares and clothing prices also fell. Monthly rents and used car prices increased.
Gas 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 come down a bit. They averaged $3.70 per gallon on Thursday, according to AAA’s Daily Fuel Gauge Report.
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 per cent last month. The index measures prices before they reach the consumer.
The unemployment rate is still high at 7.7 per cent. 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 per cent.
The Fed will hold a two-day meeting next week and economists expect the central bank will keep its low-interest-rate policies unchanged.