Prices Byte by Dean Baker

For Immediate Release: March 14, 2008
Contact: Alan Barber, (202) 293-5380 x115

Higher import prices and weak productivity growth are likely to lead to higher inflation.

The overall CPI was unchanged in February as a 0.5 percent drop in energy prices offset a 0.4 percent rise in food prices. The core index was also flat as inflation moderated in several areas and apparel and car prices fell for the month. Over the last three months the overall CPI has risen at a 3.1 percent annual rate, down from a 4.0 percent rise over the last year. The core rate has risen at a 2.3 percent annual rate over the last three months, the same as its rate over the last year.

While the inflation news is encouraging, it is likely that this report is somewhat of an anomaly. Last month, inflation in both the core and overall CPI was higher than expected. It is likely that more price increases were picked up in the data in January, and therefore the price rises were less than might otherwise have been the case for February.

For example, medical care costs reportedly jumped 0.5 percent in January, but rose just 0.1 percent in February. Tuition costs rose by 0.6 percent in January, but just 0.3 percent in February. Apparel prices rose 0.4 percent in January, but fell 0.3 percent in February. Hotel prices fell 1.2 percent in February after jumping by 1.1 percent in January. For these items, the three-month averages probably provide the best measure of the underlying inflation rate, since these movements are likely dominated by noise.

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