U.S. consumer prices fell in February due largely to a continued drop in energy prices, but other evidence pointed to steadily building inflation pressures as the labor market and economy gain steam.
The consumer-price index, a gauge of what Americans pay for everything from refrigerators to dental care, declined a seasonally adjusted 0.2% over the month, the Labor Department said Wednesday. Overall prices haven’t risen since November.
But the drop was due entirely to a decline in the price of energy products such as gasoline. A measure known as core prices—which excludes food and energy prices—climbed 0.3%, as prices for everyday items such as rent and medical care continue to steadily rise.
The report gives another mixed outlook on inflation. Consumer prices rose just 1% in the year through February, as the long slide in oil prices kept the lid on overall inflation. But core prices climbed 2.3%, notching the largest 12-month gain since May 2012.
The figures are likely to reassure the Federal Reserve that demand in the U.S. is healthy and the U.S. expansion remains on track despite worries earlier this year that the risk of a recession was rising. The central bank will conclude its latest policy meeting Wednesday, and officials are likely to hold off on raising short-term interest rates this time.
But higher inflation, coupled with continued job growth, bolsters the case for officials to move up rates later this year.
Inflation remains subdued compared with earlier expansions. The Fed targets annual consumer-price growth of 2% —as measured by a separate, Commerce Department index—as a sign the economy is growing healthily but not overheating. Under that measure—the price index for personal consumption expenditures—prices have picked up, but still grew just 1.3% in the year through January. Core prices expanded 1.7%.
Depressed oil prices and a strong dollar have restrained overall consumer prices over the past year and a half, though oil has slowly posted gains in recent weeks.
Wednesday’s report showed energy costs fell 6% in February from a month earlier and were down 12.5% from a year earlier. The price of gasoline slid 13% over the month and nearly 21% over the year.
But costs for most other items are ticking higher. Food prices grew 0.2% from January and 0.9% from 12 months earlier.
Shelter costs-reflecting home rent and mortgage payments-increased 0.3% over the month and 3.3% over the year. The cost of medical-care services climbed 0.5% over the month and 3.9% over the year.
In a separate Labor Department report Wednesday, Americans’ average weekly earnings, adjusted for inflation declined 0.5%. The drop reflected a 0.6% decrease in the average workweek; real average hourly earnings were flat.