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US inflation jumps again as price pressures remain elevated

Inflation in the United States rose solidly in February, official data showed Tuesday, in a surprise acceleration that suggests some stickiness in consumer prices that could give policymakers pause as they mull timing to start interest rate cuts.

Consumer prices remain a persistent challenge for the U.S. Federal Reserve (Fed) and President Joe Biden’s reelection campaign. Both are counting on a steady easing of price pressures this year.

Prices rose 0.4% from January to February, higher than the previous month’s figure of 0.3%, the Labor Department said. Compared with a year earlier, consumer prices rose 3.2% last month, faster than January’s 3.1% annual pace.

Excluding volatile food and energy prices, so-called “core” prices also climbed 0.4% from January to February, matching the previous month’s increase at a faster pace than is consistent with the Fed’s 2% target. Core inflation is watched closely because it typically provides a better read of where inflation is likely headed.

Pricier gas pushed up overall inflation, with pump prices rising 3.8% from January to February. Grocery prices, though, were unchanged last month and are up just 1% from a year earlier. The cost of clothing, used cars and rent increased in February, raising inflation.

Despite February’s elevated figures, most economists expect inflation to decline this year slowly. At the same time, the uptick last month may underscore the Fed’s cautious approach toward interest rate cuts.

Overall inflation has plummeted from a peak of 9.1% in June 2022, though it’s now easing more slowly than last spring and summer. The prices of some goods, from appliances to furniture to used cars, fell after clogged supply chains during the pandemic sent higher prices. There are more new cars on dealer lots and electronics on store shelves.

By contrast, prices for dental care, car repairs and other services are rising faster than before the pandemic. Car insurance has shot higher, reflecting rising costs for repairs and replacement. After sharply raising pay for nurses and other in-demand staff, hospitals are passing their higher wage costs on to patients in the form of higher prices.

Voter perceptions of inflation will be central to this year’s presidential election. Despite a healthy job market and a record-high stock market, polls show that many Americans blame President Joe Biden for the surge in consumer prices that began in 2021. Though inflationary pressures have significantly eased, average prices remain far above where they stood three years ago.

In his State of the Union speech last week, Biden highlighted steps he has taken to reduce costs, like capping the price of insulin for Medicare patients. The president also criticized many large companies for engaging in “price gouging” and so-called “shrinkflation,” in which a company shrinks the amount of product inside a package rather than raising the price.

“Too many corporations raise prices to pad their profits, charging more and more for less and less,” Biden said.

Fed Chair Jerome Powell signaled in congressional testimony last week that the central bank is getting closer to cutting rates.

After a meeting in January, Fed officials said in a statement that they needed “greater confidence” that inflation was steadily falling to their 2% target level. Since then, several of the Fed’s policymakers have said they believe prices will keep declining. One reason, they suggested, is that consumers are increasingly pushing back against higher prices by seeking out cheaper alternatives.

Most economists expect the Fed’s first rate cut to occur in June, though May is also possible. When the Fed cuts its benchmark rate, it reduces borrowing costs for mortgages, car loans, credit cards and business loans over time.

One factor that could keep inflation elevated is the still-healthy economy. Though most economists had expected a recession to occur last year, hiring and growth were strong and remained healthy. The economy expanded 2.5% last year and could grow at about the same pace in the first three months of this year, according to the Federal Reserve’s Atlanta branch.

Last week, the Labor Department said employers added a robust 275,000 jobs in February, the latest in a streak of solid hiring gains. The unemployment rate stayed below 4% for the 25th straight month, the longest such streak since the 1960s.

Still, the unemployment rate rose from 3.7% to 3.9%, and wage growth slowed. Both trends could make the Fed feel more confident that the economy is cooling, which could help keep inflation falling and lead the central bank to begin cutting rates.

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