Consumer Inflation Cooled in February

The Consumer Price Index (CPI) rose 0.4% last month, or 6% year-over-year, at the slowest annual pace since September of 2021

Woman checking bill at supermarket

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Consumer inflation cooled last month, signaling some success in the Federal Reserve’s interest rate campaign and fueling speculation policymakers have more leeway to slow the pace of increases in the wake of high-profile bank failures.

The Consumer Price Index (CPI) rose 0.4% in February from a month earlier, in line with estimates, and was up 6% year-over-year, the Bureau of Labor Statistics (BLS) reported Tuesday. Price gains slowed from January’s 0.5% increase. It was the slowest annual pace since September of 2021, decelerating from 6.4% in January.

Core prices, which exclude volatile food and energy costs, rose 0.5% last month, or 5.5% year-over-year. On an annual basis, they rose the least since December of 2021. Those figures were also in line with market expectations.

Key Takeaways

  • Prices as tracked by the Consumer Price Index (CPI) rose 0.4% in February, or 6% year-over-year, at the slowest annual rate since September of 2021
  • Core prices, which exclude volatile food and energy costs, were up 0.5%, or 5.5% year-over-year
  • Rising shelter and services costs were the main contributors to last month’s price gains; food prices rose modestly while prices for gasoline, used cars and trucks, and medical care services declined
  • Cooling inflation could prompt Fed policymakers to ease the pace of interest rate hikes, if not stopping them altogether, amid a wave of high-profile bank failures in the U.S.

Price Gains by Category

Shelter costs were by far the largest contributor to February’s price gains, accounting for more than 70% of the increase. They rose 0.8% last month and were up 8.1% year-over-year. Inflation in services, which includes shelter costs, has outpaced goods inflation in recent months. The broader services index rose 0.6% last month and was up 7.3% year-over-year, well above the headline rate.

Food costs rose 0.4% and were up 9.5% year-over-year, decelerating from 10.1% in January. While elevated, it marks the smallest annual rate since April of last year. The index for food at home, which tracks groceries and other consumer staples, rose 10.2% from a year earlier. The index for food away from home, tracking prices at restaurants and outdoor dining establishments, rose 8.4%.

Energy prices declined, falling 0.6% from a month earlier and partially reversing a 2% gain in January. On an annual basis, the energy index rose 5.1%, at the slowest annual pace since February of 2021. Gasoline prices, which climbed to records during the first half of 2022, declined on an annual basis, falling 2% year-over-year. Fuel oil costs were more elevated, rising 9.2% from a year ago.

Other categories experiencing deflation last month included prices for used cars and trucks, which fell 2.8%, or 13.6% year-over-year, and costs of medical care services, which declined 0.7% and were up just 2.1% on an annual basis.

Implications for Fed Policy

Progress in slowing the rate of inflation could prompt Fed officials to ease the pace of interest rate hikes, or stop them altogether. Fed funds futures published by CME Group are now pricing in a terminal fed funds rate between 5% and 5.25% by May, and traders now expect the FOMC to begin cutting rates as soon as June.

Article Sources
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  1. Bureau of Labor Statistics (BLS). “Consumer Price Index Summary: February 2023.”

  2. CME Group. “CME FedWatch Tool: Target Rate Probabilities for June 14, 2023 Fed Meeting.”

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