Amid Yearlong Price Pressures, an 'Encouraging Sign'

Federal Reserve's favored inflation gauge slowed sharply last month
By Newser Editors and Wire Services
Posted Mar 31, 2023 11:10 AM CDT
Fed's Favorite Inflation Gauge Just Notched a Slowdown
Shoppers are silhouetted against the sky as they arrive for a sale at a Best Buy store on Nov. 25 in Overland Park, Kansas.   (AP Photo/Charlie Riedel, File)

The Federal Reserve's favored inflation gauge slowed sharply last month, an encouraging sign in the Fed's yearlong effort to cool price pressures through steadily higher interest rates. Friday's report from the Commerce Department showed that consumer prices rose 0.3% from January to February, down from a 0.6% increase from December to January. Measured year-over-year, prices rose 5%, slower than the 5.3% annual increase in January, per the AP. Excluding volatile food and energy prices, so-called core inflation rose 0.3% from January and 4.6% from a year earlier. Both were slowdowns from the previous month. The Fed is believed to pay particular attention to the core measure as a gauge of underlying inflation pressures.

Taken as a whole, Friday's figures show that inflation pressures, though easing gradually, still maintain a grip on the economy. The Fed has raised its benchmark rate nine times since March of last year in an aggressive drive to tame inflation, which hit a four-decade high in mid-2022. The report also showed that consumer spending rose 0.2% from January to February, a drop from a hefty 2% increase a month earlier. But Phil Levy, chief economist at the supply chain consultancy Flexport, noted that the government revised up January's consumer spending figures and that the savings rate ticked up in February—to 4.6% of after-tax income. That suggests to him that Americans have the financial wherewithal to keep shopping.

"People are spending," Levy said. "People can afford to be spending. If you want to slow down inflation, you've got to somehow suppress that.'' Job openings remain plentiful, hiring is strong, layoffs are still low, and the unemployment rate is barely above a half-century low. A result has been upward pressure on wages, which have contributed to inflationary pressures. Even after having slowed, consumer prices are still posting year-over-year increases well above the Fed's 2% target. Earlier this month, the Labor Department said its consumer price index rose 0.4% from January to February, and 6% from February 2022. Many American families are still feeling squeezed by higher prices. "I can go get a $5 meal at Wendy's, which isn't even healthy, but that's cheaper than buying the ingredients to make a meal at home," said Jennifer Schultz of St. Joseph, Missouri.

(More inflation stories.)

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