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US consumer prices unexpectedly rise in February

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US consumer prices unexpectedly rose in February but are likely to decline in the months ahead as the coronavirus outbreak depresses demand for some goods and services, outweighing price increases related to shortages caused by disruptions to the supply chain.

[WASHINGTON] US consumer prices unexpectedly rose in February but are likely to decline in the months ahead as the coronavirus outbreak depresses demand for some goods and services, outweighing price increases related to shortages caused by disruptions to the supply chain.

The report from the Labour Department on Wednesday, which also showed a steady rise in underlying inflation last month, is however, unlikely to change financial market expectations that the Federal Reserve will cut interest rates again at its policy meeting next week.

The US central bank implemented a 50-basis-points emergency rate cut last Tuesday as the fast-spreading coronavirus fanned fears of a recession in the US and global economies.

The Labour Department said its consumer price index increased 0.1 per cent last month, matching January's gain, as rising food and accommodation costs offset cheaper gasoline. In the 12 months through February, the CPI rose 2.3 per cent. That followed a 2.5 per cent jump in January, which was the biggest year-on-year gain since October 2018. Economists polled by Reuters had forecast the CPI would be unchanged in February and rise 2.2 per cent year-on-year.

The coronavirus, which causes a respiratory disease called Covid-19, has killed at least 31 people in the United States and sickened more than 1,000 people. Overall, more than 4,000 people have died from Covid-19 and over 120,000 have been infected.

The disease originated in China, the main source of inputs used in many factories in the United States. While some Chinese factories have resumed operations after Beijing extended the Lunar Year holidays in an effort to limit the spread of the virus, they are running below normal capacity.

The supply disruptions are expected to lead to shortages of some goods, including prescription medication, which could boost prices. But fears of a global recession and oil price war between Russia and Saudi Arabia have sent crude prices tumbling.

In addition, travel restrictions and social distancing are likely to sap demand for services such as travel, hotels, entertainment and eating out at restaurants. The coronavirus' impact is expected to start showing up in March inflation data.

Excluding the volatile food and energy components, the CPI increased 0.2 per cent in February, matching the gain in January. The so-called core CPI was up by an unrounded 0.2229 per cent last month. Underlying inflation in February was boosted by rising prices for apparel, personal care, healthcare, used cars and trucks, and education. Airline fares and recreation prices fell.

In the 12 months through February, the core CPI increased 2.4 per cent, after advancing by 2.3 per cent for four consecutive months.

The Fed tracks the core personal consumption expenditures (PCE) price index for its 2 per cent inflation target. The core PCE price index rose 1.6 per cent on a year-on-year basis in January. It undershot its target in 2019. February's PCE price data will be published later this month.

In February, gasoline prices dropped 3.4 per cent after falling 1.6 per cent in January. Food prices shot up 0.4 per cent after rising 0.2 per cent in January. Prices for food consumed at home jumped 0.5 per cent, the most since May 2014.

Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, increased 0.2 per cent in February after gaining 0.3 per cent in the prior month. The shelter index gained 0.3 per cent after jumping 0.4 per cent in January.

Healthcare costs edged up 0.1 per cent last month after rising 0.2 per cent in January. Apparel prices increased 0.4 per cent after jumping 0.7 per cent in January. New vehicle prices nudged up 0.1 per cent in February after being unchanged in the prior month. Prices for used motor vehicles and trucks rebounded 0.4 per cent after falling 1.2 per cent in January. 

REUTERS