U.S. Inflation Trends in Wrong Direction in February

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Despite the Federal Reserve’s efforts to curb inflation, consumer prices trended up in February. The price of goods and services paid by U.S. consumers ticked up to 3.2% in the year-ending February, according to the Consumer Price Index for All Urban Consumers measured by the Bureau of Labor Statistics. That was marginally higher than the 3.1% annual rate in January – an unwelcomed sign that inflation is trending in the wrong direction. Annual inflation as of February was slightly above economists’ expectations (3.1%) and notably beyond the Federal Reserve’s target of 2%. However, inflation has cooled considerably since reaching a 40-year high of 9.1% in June 2022. For comparison, the inflation rate averaged 1.6% annually in the five years leading up to the COVID-19 pandemic (2015-2019). Core inflation, which strips out volatile costs of food and energy, was up 3.8% year-over-year in February, below the 3.9% annual increase in January and the smallest annual increase since May 2021. The energy index fell 1.9% in the year-ending February, with lower gas prices (-3.9%) contributing to that downturn. The cost of shelter, which is keeping the overall inflation rate high, rose 5.7% from a year ago. Still, that was the slowest increase in over a year. However, the shelter index has a well-documented lag effect. Excluding the cost of shelter, consumer prices were up just 1.8% year-over-year in February.