U.S. Inflation Trends in Wrong Direction in February

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.