By LUCIA MUTIKANI
WASHINGTON- US consumer prices increased moderately in February as higher shelter costs were partially offset by cheaper airline fares, giving the Federal Reserve room to keep interest rates unchanged next week while monitoring the economic impact of a trade war.
But the relief offered by the tame Consumer Price Index report from the Labor Department on Wednesday could be temporary as the data did not fully capture a cascade of tariffs by President Donald Trump’s administration, which has caused a surge in consumers’ inflation expectations and prompted economists to upgrade their inflation forecasts.
Economists also did not expect last month’s benign readings to be mirrored in one of the key inflation measures tracked by the US central bank for its 2 percent target, though much would depend on producer price data for February that is due to be released on Thursday.
The stock market has suffered heavy losses in recent days as trade tensions threatened the US economic expansion.
“Trade wars are expected to raise prices in future inflation reports,” said Chris Low, chief economist at FHN Financial. “The Fed is sidelined now by price uncertainty.”
The CPI rose 0.2 percent last month, the smallest gain since October, after accelerating 0.5 percent in January, the Labor Department’s Bureau of Labor Statistics said.
An increase of 0.3 percent in the cost of shelter, which includes hotel and motel rooms, accounted for nearly half of the rise in the CPI. Shelter prices rose 0.4 percent in January.
They were partially blunted last month by a 4.0 percent decline in airline fares, portending weaker demand as corporations and consumers cut back on spending. US airlines cut their earnings estimates on Tuesday, citing mounting economic uncertainty.
Gasoline prices fell 1.0 percent as slowing global economies cool demand for oil. Food prices rose 0.2 percent after advancing 0.4 percent in January. Grocery store prices were unchanged amid more affordable fruits and vegetables as well as non-alcoholic beverages and dairy products.
But egg prices rose 10.4 percent, maintaining their upward trend. An avian flu outbreak has forced farmers to cull hens, causing an acute egg shortage. Egg prices, which fueled voter discontent over inflation in last year’s US presidential election, increased 58.8 percent on a year-on-year basis in February, the first full month of the Trump administration. Trump on the campaign trail promised to lower egg prices on his first day in office.
In the 12 months through February, the CPI increased 2.8 percent after climbing 3.0 percent in January. Economists polled by Reuters had forecast the CPI would gain 0.3 percent and advance 2.9 percent on a year-on-year basis.
Trump early this month triggered a trade war, increasing the tariffs on goods from China to 20 percent and imposing a new 25 percent duty on Canadian and Mexican imports, before providing a one-month exemption for any goods that meet the rules of origin under the US Mexico-Canada Agreement on trade.
