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U.S. Consumer Prices Rise 0.4% in February; Core Rate Up 0.2%

By Courtney Schlisserman

March 16 (Bloomberg) -- Prices paid by U.S. consumers rose 0.4 percent last month, paced by gains in fuel, food and medical care that highlight Federal Reserve concerns over inflation.

The increase in the consumer price index followed a 0.2 percent January rise, the Labor Department said today in Washington. Core prices, which exclude food and energy, rose 0.2 percent and were 2.7 percent higher than a year earlier.

Combined with last month's jump in wholesale prices, the figures make it tougher for the Fed to lower rates should the mortgage crisis cause the economy to stumble. Policy makers are forecast to leave their benchmark interest rate unchanged for a sixth time when they meet next week.

``Inflation is running faster than the Fed would like it to run,'' Michael Moran, chief economist at Daiwa Securities America Inc. in New York, said before the report. ``They believe it will fall gradually on its own as economic growth eases and they'll be patient in reacting to the numbers.''

Economists forecast consumer prices would rise 0.3 percent, according to the median of 75 projections in a Bloomberg News survey. Estimates ranged from increases of 0.1 percent to 0.5 percent. Core prices were projected to rise 0.2 percent, according to the survey median.

Overall prices were up 2.4 percent from the same time last year, compared with a 2.1 percent gain in January. The January year-over-year increase in core prices was also 2.7 percent.

The CPI is the government's broadest gauge of costs because it includes goods and services. Other inflation reports this week showed wholesale prices jumped 1.3 percent in February, the most in three months, while prices of U.S. imports rose less than forecast.

Natural Gas

Today's report showed energy prices rose 0.9 percent after a 1.5 percent decrease in January as Americans spent more to warm their homes during the coldest February in 12 years. Fuel oil costs rose 0.5 percent and natural gas prices jumped 5 percent, the most since October 2005. Gasoline prices were up 0.3 percent.

Housing costs, which include some energy costs and account for one-third of the total consume price index, rose 0.4 percent after increasing 0.2 percent in January. Owner's equivalent rent, which makes up 30 percent of the core CPI, rose 0.3 percent, after a 0.2 percent January increase.

Other measures that boosted prices included medical care, which rose 0.5 percent, and clothing, which rose 0.5 percent.

Almost 60 percent of the CPI covers prices what consumers pay for services ranging from medical visits to airline fares and movie tickets.

Food Costs

Food prices, which account for about a fifth of the CPI, increased 0.8 percent, the most since April 2005, after a 0.7 percent increase in January. The 5.7 percent increase in the cost of fresh fruits was the biggest since July 1988.

Increased demand for ethanol is boosting grain prices and may be starting to show up in higher costs for breads, pastas and meats, according to Avery Shenfeld, an economist at CIBC World Markets in Toronto.

Tyson Foods Inc. Chief Executive Officer Richard Bond said March 7 that poultry prices at U.S. grocery stores have jumped 18 percent in the past two months as producers seek to recover higher feed costs. Tyson, the largest U.S. beef and chicken producer, will spend $380 million more this year on feed, he said.

``Consumers will pay more for meats because of higher corn prices,'' Bond said in an interview.

Fed's Preferred Measure

The Fed's preferred price gauge, which comes from the Commerce Department's income and spending report, rose 2.3 percent in January from a year earlier, figures issued earlier this month showed. Chairman Ben S. Bernanke is among Fed policy makers that have said a 1 percent to 2 percent range would be more acceptable.

Thirteen percent more small-business owners reported higher selling prices last month, up 1 percentage point and the highest in three months, a report this week from the National Federation of Independent Business showed.

``The risk of inflation remaining too high during the forecast period is greater than the risk of growth falling too low,'' Fed Bank of Chicago President Michael Moskow said last week. ``Thus, some addition firming of policy may yet be necessary to address this inflation risk.''

The Fed is counting on slower economic growth to help keep price pressures in check. In the last three quarters, the economy expanded at an average annual rate of 2.3 percent, compared with a quarterly average of 3.1 percent over the last decade.

The economy may grow at a 2.4 percent annual rate this quarter, before picking up to 3 percent by year's end, according to the median estimate of 75 economists surveyed by Bloomberg News from March 1 to March 7.

The Fed next meets on March 20 and 21. Policy makers have kept the benchmark overnight lending rate between banks at 5.25 percent since August.

To contact the reporter on this story: Courtney Schlisserman in Washington