Price Gauge Closely Tracked by the Federal Reserve Rises 2.5 Percent in February, Signaling Stubborn Inflation

inflation is running above the Fed’s 2 percent annual target, and opinion surveys show public discontent that high prices are squeezing America’s households despite a sharp pickup in average wages.

AP/Nam Y. Huh
A retail clothing store at Downers Grove, Illinois on March 12, 2024. AP/Nam Y. Huh

WASHINGTON — A measure of inflation that is closely tracked by the Federal Reserve rose 2.5 percent in February over the prior year, up slightly from a 2.4 percent year-over-year gain in January in the latest signal of stubborn price pressures.

Core prices rose 2.8 percent from a year earlier last month, down from a revised 2.9 percent in January. Economists consider core prices to be a better gauge of the likely path of future inflation.

On a monthly basis, prices rose 0.3 percent between January and February, a deceleration from the 0.4 percent increase the previous month in a potentially encouraging trend for President Biden’s re-election bid.

Excluding volatile food and energy costs, so-called core prices rose 0.3 percent between January to February, down from 0.5 percent in the previous month.

Annual inflation, as measured by the Fed’s preferred gauge, tumbled in 2023 after having peaked at 7.1 percent in mid-2022. Supply chain bottlenecks eased, reducing the costs of materials, and an influx of job seekers made it easier for employers to keep a lid on wage growth, one of the drivers of inflation.

Even so, inflation remains stubbornly above the Fed’s 2 percent annual target, and opinion surveys are showing public discontent that high prices are squeezing America’s households despite a sharp pickup in average wages.

The acceleration of inflation began in the spring of 2021 as the economy roared back from the pandemic recession, overwhelming factories, ports and freight yards with orders.

In March 2022, the Fed began raising its benchmark interest rate to try to slow borrowing and spending and cool inflation, eventually boosting its rate 11 times to a 23-year high. Those sharply higher rates worked as expected in helping tame inflation.

The jump in borrowing costs for companies and households was also expected, though, to cause widespread layoffs and tip the economy into a recession. That didn’t happen. 

The economy has grown at an annual rate of 2 percent or more for six straight quarters. Job growth has been solid. And the unemployment rate has remained below 4 percent for 25 straight months, the longest such streak since the 1960s.

The combination of easing inflation and sturdy growth and hiring has raised expectations that the Fed will achieve a difficult “soft landing″ — taming inflation without causing a recession.

If inflation continues to ease, the Fed will likely begin cutting its key rate in the coming months. Rate cuts would, over time, lead to lower costs for home and auto loans, credit card borrowing and business loans. They might also aid Mr. Biden’s re-election prospects.

The Fed tends to favor the inflation gauge that the government issued Friday — the personal consumption expenditures price index — over the better-known consumer price index.

The PCE index tries to account for changes in how people shop when inflation jumps. It can capture, for example, when consumers switch from pricier national brands to cheaper store brands.

In general, the PCE index tends to show a lower inflation level than CPI. In part, that’s because rents, which have been high, carry double the weight in the CPI that they do in the PCE.


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