The Consumer Price Index (CPI) rose 0.4% in February and was up 1.7% from a year ago. That marks a large acceleration from the 1.4% year-over-year increase we saw in January. Prices at the gas pump alone jumped by 6.4 on a monthly basis and accounted for over half of the 0.4% monthly gain. Power outages in the oil patch in February and efforts to keep a lid on production by OPEC and Russia suggest prices will continue to rise in March.
The increase in overall food prices remained tepid but there were some disturbing increases in the costs for meat, poultry, fish and eggs. The year-over-year increase in meat and poultry was the largest on record, but anyone who goes to the grocery store knows that. Food prices are one area that has risen in response to the disruptions created by the pandemic. Thankfully, families have some additional help to pay for those costs. The rise in hunger among children has been particularly heartbreaking as a result of the pandemic.
Core CPI (excluding food and energy prices) was nearly unchanged and increased only 0.1% in February. Year-over-year measures actually decelerated from a 1.4% pace in January to 1.3% pace in February. Another drop in airfares, hotel room rates, apparel prices and prescription drug costs more than offset monthly increases in other costs like shelter and medical care. Doctors’ offices posted large increases while hospital services declined. Hospitals have been unable to raise prices as they have been swamped with COVID patients.
Beware of a jump in year-over-year measures in inflation starting in March. This is because of the sharp downdraft in prices we saw at the onset of the crisis a year ago. We could also see some flare in prices related to the pent-up demand that we will unleash in the service sector as we move into vacation season. The algorithms for airfares and hotel room rates are designed to respond to a jump in demand.
Those gains are expected to be transitory. We are still risking a fourth wave of infections given the new variants. That means that the road to reopening more fully will be bumpy. The Federal Reserve has vowed to “look through” any transitory increase in prices. Fed officials are waiting to raise rates when the economy is more fully healed and inflation is much warmer than it is today.
Inflation remains tepid. It will pick up but we are still a long way from worrying about a persistent rise in inflation.
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