February Inflation Report: Consumer Price Increases Inch Higher

A key inflation report showed that price increases ticked up in February on an overall basis and that a closely watched measure of underlying price increases was firmer than expected.

The fresh data underscore that returning inflation back to a normal pace is likely to be a bumpy process — and back up the Federal Reserve’s decision to proceed carefully as officials consider when and how much to lower interest rates.

The Consumer Price Index climbed 3.2 percent last month from a year earlier, up from 3.1 percent in January. That’s down notably from a 9.1 percent high in 2022, but it is still quicker than the roughly 2 percent that was normal before the 2020 pandemic.

After stripping out volatile food and fuel costs for a better sense of the underlying trend, inflation came in at 3.8 percent, slightly faster than economists had expected but down from 3.9 percent in January. And on a monthly basis, core inflation climbed slightly more quickly than economists had forecast as airline fares and car insurance increased, even as a closely watched housing measure climbed less rapidly.

Taken as a whole, the report was the latest sign that bringing inflation fully down is likely to take time and patience.

To date, inflation has come down steadily and relatively painlessly: Unemployment continues to hover below 4 percent and growth in 2023 was unexpectedly strong, even though the Fed has raised interest rates to a more than two-decade high.

Fed officials have been debating how long they need to leave rates at their current level, about 5.3 percent. Elevated borrowing costs make it expensive for people to borrow to buy a house or expand a business, and that can weigh on the economy over time. While the Fed has been trying to tamp down demand enough to bring inflation under control, officials want to avoid crushing growth to the point that it leads to widespread job losses or a recession.

But some economists have been worried that it could be harder to slow inflation the rest of the way than it has been to achieve the progress so far. And Fed officials want to avoid lowering interest rates too early, only to find out that inflation is not fully quashed.

“We don’t want to have a situation where it turns out that the six months of good inflation data we had last year didn’t turn out to be an accurate signal of where underlying inflation is,” Jerome H. Powell, the Fed chair, said while testifying before Congress last week. Given that, he said, the Fed is being careful.

But Mr. Powell also said last week that when the Fed was confident that inflation had come down enough, “and we’re not far from it,” then it would be appropriate to lower interest rates.

The Fed aims for 2 percent yearly inflation. It defines that goal using a separate but related inflation index, the Personal Consumption Expenditures measure. That index incorporates some data from the Consumer Price Index figures, but comes out at more of a delay.

Some economists have questioned whether price increases will continue to fade smoothly. If inflation for services — things like housing and insurance — proves more stubborn than expected, it could make overall price increases more difficult to fully stamp out.

Tuesday’s report offered some good news in that regard: A closely watched measure that effectively tracks how much it would cost to rent a house that someone owns climbed more moderately. Economists had been nervously eyeing that “owners’ equivalent rent” measure after it climbed rapidly in January.

Rent of primary residences, on the other hand, climbed slightly more quickly, at 0.5 percent on a monthly basis, compared to 0.4 percent in January.

And while goods have been subtracting from inflation lately, there were some exceptions in February. Apparel prices have been sinking recently on a monthly basis, but climbed in cost last month.