U.S. inflation continued to outpace expectations in February as prices on consumer goods and services inched up .4% from the previous month and 3.2% from the same time last year, according to a federal report released Tuesday.
The main culprits behind the uptick, according to Labor Department’s Consumer Price Index Summary for February, are energy prices and the cost of shelter. Energy costs rose 2.3% over January but were still down 1.9% over the past 12 months. The cost of shelter, which includes a metric that estimates how much rent an owner would earn from their home, bumped up .4% month over month in January and is up 5.7% from this time a year ago.
Changes in the cost of shelter have an outsize impact on the consumer price index as the metric accounts for about one-third of the overall rate.
“Inflation continues to churn above 3%, and once again shelter costs were the main villain,” Robert Frick, corporate economist at Navy Federal Credit Union, told CNBC. “With home prices expected to rise this year and rents falling only slowly, the long-awaited fall in shelter prices isn’t coming to the rescue any time soon.
“Reports like January’s and February’s aren’t going to prompt the Fed to lower rates quickly.”
Consumers may take some solace, however, in the average cost of their grocery purchases last month as prices held steady from January but are up 4.5% from this time last year.
Core inflation, a measure that strips out volatile food and energy prices, continues to track higher than headline inflation and came in at a 3.8% annual rate in February but was down a tenth of a percent from January.
Regional annual inflation for Mountain West states, which include Utah, ran considerably lower than the national average in February at 2.5%.
The new data is likely to bolster the Federal Reserve’s wait-and-see stance on lowering the monetary body’s benchmark interest rates, which remain in the 5.25% to 5.5% range, the highest in decades. While the Fed has signaled a series of reductions will happen this year and likely to come in .25% increments, Chairman Jerome Powell has been steadfast in noting that officials want to see more evidence that inflation is under control and ticking toward the body’s goal of a 2% annual rate.
While the Federal Reserve board of governors is set to meet later this month, Powell spent two days last week speaking to members of Congress and delivered a mostly optimistic report noting the U.S. economy “is growing at a healthy, sustainable, solid, strong pace.”
Powell also hinted that the the first reduction to its federal funds lending rate since March 2020 could be right around the corner.
“We’re waiting to become more confident that inflation is moving sustainably at 2%,” Powell told the U.S. Senate Banking Committee. “When we do get that confidence, and we’re not far from it, it’ll be appropriate to begin to dial back the level of restriction.”
Interest rate adjustments are the Fed’s primary weapon in an ongoing battle against the elevated prices of consumer goods and services. While the monetary body has paused making any rate adjustments since its July 2023 meeting, it had assessed 11 increases going back to March 2022, the most aggressive series of rate hikes in decades.
The rate increases raise the cost of debt for businesses and consumers, a move that aims to reduce the amount of spending and overall economic activity. That shift in dynamics typically leads to lower inflation rates.