Consumer prices rose slightly faster in February, a signal for the Fed to hold cutting interest rates.
Prices rose 0.4% from a month earlier in January and increased 3.2% from a year ago, according to the Labor Department. That rise in prices was slightly higher than economists’ predicted on a Bloomberg survey and was a bit faster than in January with core prices at 3.8%. Although inflation is down from its 9% height in 2023, it is still not at the Fed’s target 2% rate of inflation, which it achieved prior to the pandemic.
The report is the latest evidence that the last mile — the final one percent needed to reach the Fed’s 2% inflation goal— will be a long and bumpy road. The Federal Reserve has hammered down on inflation since 2022, but moving below 3% towards a cooler economy might be its biggest hurdle yet.
“It just tells you they’re going to have to continue to be patient,” said Steven Ricchiuto, US Economist at Mizuho.
Inflation rose sharply after the pandemic, and fueled fear of an impending recession, which has so far proved false. The economy has remained hot with high consumer spending and a strong labor market, which contributed to a resilient economy — and resilient inflation.
While inflation has gone down from its 9% peak in 2022, prices have not.
“I would say, my grocery bill has quadrupled,” said Melissa Clark, 45, from Springville, Utah, who works as a service advisor for an auto repair shop, and said she saw the biggest increase.
Despite success in slowing inflation, the Federal Reserve Chair Jerome Powell said that “the job is not done,” in an interview with 60 minutes last month.
Interest rates are at their highest in nearly 20 years at 5.25-5.5%, and while economists initially expected the Fed to cut rates in March, faster-than-expected inflation has pushed that date later, according to economists.
“Inflation has proven stickier as the Fed tries to engineer inflation closer to the 2% target rate,” said Sam Bullard, Senior Economist at Wells Fargo.
While the Fed is focused on slowing inflation, consumers are preoccupied with the lack of affordable housing in the country. Rent increased again this month by 0.4% and though it increased less sharply than in January, it weighed heavily into the price report.
Rents spiked a year after the pandemic in 2021, underscoring an ongoing shortage in housing and high mortgage rates, which put a strain on young home-buyers. In 2023 rent reached an 8% high before slowing down, although rates are still higher than in 2019, pre-pandemic.
Helen Stamas, a 65-year-old retiree in Vero Beach, Fla., said that her children had recently struggled to buy a home in Florida due to high prices.
“Inflation has really killed the housing market for young people,” she said. “My kids are graduate educated and can’t find a place to live that’s suitable,” she said.
“Affordable housing for people is really a crisis in this country.”
Apparel prices also went up by 0.6% last month. Other items that increased were motor vehicle insurance and airline fares which rose by 3.6%. Although prices are adjusted for each season, residual seasonality plays a role in higher reported inflation.
“In general, this is a time of year where firms are adjusting prices and seasonals try to pick up on that, but that’s not always the case,” said Bullard. Slight price increases that are missed in seasonality adjustments may show up higher in consumer price reports.
The Fed’s preferred measure of inflation, PCE, will come out in the next weeks to shed some more light into inflation data, but any interest rate cuts are likely to take time.