Economy
Mel Evans  /  AP
Shoppers walk near the grocery section in a Wal Mart superstore in Turnersville, N.J. Tuesday. Consumer inflation posted its mildest reading in six months in February.
updated 3/14/2008 3:19:37 PM ET 2008-03-14T19:19:37

Consumer inflation, which had been pushing relentlessly higher, posted its mildest reading in six months in February as the costs of energy and food moderated. The relief was expected to be short-lived, given that energy prices have resumed their upward climb.

The Labor Department reported Friday that consumer prices were unchanged last month, a much better performance than the 0.3 percent gain that had been expected.

Core inflation, which excludes energy and food, was also well-behaved, with an unchanged reading in February following a worrisome 0.3 percent jump in January.

The better-than-expected February inflation reading will likely be reversed in coming months, considering the big surge in energy prices in recent weeks. Crude oil hit a record high this week above $110 per barrel and gasoline pump prices jumped to a national record of $3.28.

But for February, energy prices posted a 0.5 percent decline with gasoline prices falling by 2 percent, the biggest drop since last August.

Food costs, which have been surging, also moderated a bit, rising by 0.4 percent following a huge 0.7 percent jump in January.

The price of vegetables, fruit, poultry and pork all declined. But the price of cereal and bakery products shot up by 1.8 percent, its largest monthly increase since January 1975. Part of the rise in food costs reflects higher energy prices which raise transportation costs. Also food prices have been under upward pressure because of the increased demand for corn to use in the production of ethanol.

The flat reading for core inflation in February left underlying inflation rising by 2.3 percent over the past 12 months, still above the Federal Reserve Board’s comfort range of 1 percent to 2 percent.

But the good reading in February should bolster the view that the central bank will move aggressively to cut interest rates next Tuesday in an effort to battle spreading economic weakness.

Many private analysts believe the Fed will cut rates by as much as a half-point to three-fourths of a point, seeking to either prevent a full-blown recession or at least moderate its effects.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, said while the inflation readings will not be as good going forward, perhaps the February performance will mean that “at least some of the inflation hysteria can now subside.”

Major Market Indices

The unchanged reading for overall prices followed sizable gains of 0.4 percent in January and December and 0.9 percent in November.

Clothing costs, which had risen for five straight months, posted a 0.3 percent decline in February while the cost of new vehicles was down 0.3 percent and airline fares fell by 0.3 percent. The decline in airline tickets was expected to be short-lived in view of rising energy prices.

The cost of medical care posted a small 0.1 percent increase in February as doctors’ fees actually fell. However, medical care, the fastest-rising price category outside of energy, is still up by 4.5 percent over the past year.

For all of 2007, consumer inflation rose by 4.1 percent, the biggest increase in 17 years as the cost of both food and energy accelerated sharply.

That big increase raised concerns about stagflation, the malady that beset the economy in the 1970s when economic growth stagnated at the same time that inflation pressures increased.

However, Federal Reserve Chairman Ben Bernanke has said that he does not believe the country is at risk of another episode of stagflation.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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