Inflation ran cooler in February than expected, according to a key measure of prices released Monday.
Prices were up just 1 percent annually through February, according to the Personal Consumption Expenditures price index updated by the Bureau of Economic Analysis Monday morning. That was down from 1.2 percent in January.
Perhaps more importantly, “core” inflation held steady at 1.7 percent annually. Investors had expected a bump up in monthly core inflation, which strips out food and energy prices to make inflation less volatile and more predictable.
Although the PCE index for inflation is less widely known than the Consumer Price Index, it is the metric used by the Federal Reserve in setting and monitoring its target for inflation, which is 2 percent.
Inflation, and core inflation in particular, should eventually rise as unemployment falls, in the view of most Federal Reserve officials. With inflation having run below the 2 percent target since early 2012, Fed members have been worried that below-target inflation has meant that there are fewer jobs and less commerce than there could be if the economy were at full capacity. Higher inflation would push the central bank to pursue tighter monetary policy.
Yet Monday’s numbers are a sign that Fed Chairwoman Janet Yellen and other members may have gotten one prediction right at their monetary policy meeting this month. They had predicted that inflation would tick down in the months ahead, even as job gains mounted and the Fed avoided raising rates.
Explaining that forecast, Yellen said the higher inflation readings throughout the first few months of the year were attributable to some specific prices that tend to be highly volatile, and not predictive of future inflation. “I’m wary and haven’t yet concluded that we have seen any significant uptick that will be lasting in, for example, in core inflation,” she said.
Even though inflation did tick down in February, it’s still higher than it was at any time in 2015, when collapsing oil prices sent overall inflation down to near zero. Core inflation, meanwhile, is at a rate not seen since late 2012.
