exp U.S. Federal Reserve chair warns of further interest rate hikes business_00002001.png
U.S. Federal Reserve chair warns of further interest rate hikes business
08:43 - Source: CNN
Minneapolis CNN  — 

Inflation’s temperature came down a little bit more last month, but the Federal Reserve’s campaign to bring down high prices has grown even more complex in recent days.

The Consumer Price Index, a closely watched gauge of inflation, showed that annual price increases continued to slow in February, the Bureau of Labor Statistics reported on Tuesday.

CPI measured 6% for the year ended in February, down from January’s 6.4% and in line with economists’ expectations.

It’s the eighth consecutive month that the annual rate has declined and marks the lowest level since September 2021.

“Inflation has peaked, but it hasn’t gone into hibernation,” said Mark Hamrick, senior economic analyst for Bankrate.

On a monthly basis, prices were up 0.4%, representing a cooldown from the January monthly growth rate of 0.5%. Economists were expecting a gain of 0.4%.

“Most people are going to be encouraged to see the number continue to trend down,” Emily Reasor, senior partner with McKinsey & Company, said in an interview with CNN. “This is going to still take a while to return to numbers that we’re all comfortable with. We’re going to have, certainly this year, to still deal with higher inflation numbers than most consumers are comfortable with or used to.”

What’s in the report

Shelter prices were the largest contributor to the monthly increase, accounting for 70% of February’s gain, according to the BLS. Shelter prices were up 0.8% for the month and 8.1% year over year.

Food prices continued to cool. Overall food prices were up 9.5% for the 12 months ending in February, representing the lowest annual rate for the category since April. Prices for food at home (grocery purchases) were up 10.2% in February, the lowest since March 2022.

When stripping out volatile energy and food prices, core CPI grew 0.5% on a monthly basis and 5.5% year over year. While the annual core CPI inched down 0.1 percentage points, the monthly core measurement accelerated from a 0.4% growth rate seen in January.

Used vehicles for sale at a dealership in Colma, California, on Tuesday, Feb. 21, 2023.

Some of the categories with notable monthly declines included eggs (down 6.7%), used vehicles (down 2.8%), utility gas service (down 8%) and fuel oil (down 7.9%).

Services inflation — a key area of focus for the Federal Reserve as it seeks to gauge how “sticky” inflation is becoming — ticked up 0.1 percentage points to 0.8% for the month. It’s up 8.1% year over year.

“Services inflation is still hot; the Fed still has work to do, and their actions and communications are going to come under increasing scrutiny given the events of the past few days,” said Andrew Patterson, senior international economist for Vanguard, citing recent stress in the banking sector. “They need to be careful in balancing the risks of price and financial stability.”

What it means for the Fed

CPI is one of the last major pieces of economic data to be released before the Fed’s policymaking meeting next week.

However, the Fed’s fight against inflation has grown more complex in recent days.

Following the collapse of Silicon Valley Bank, Signature Bank and Silvergate, the Fed stepped in alongside Treasury and the Federal Deposit Insurance Corporation to attempt to stem broader fallout.