Inflation is slowly but steadily going down, the consumer price index showed, according to a report released Tuesday by the Bureau of Labor Statistics.
The CPI measures the monthly change in prices that U.S. consumers pay for certain goods. It’s a key government indicator of inflation.
Here are three things to know about the inflation report and what it might mean going forward.
1. It has some of the lowest increases in more than a year.
Prices rose 6 percent in February compared to a year earlier. This is a decent slowdown from January, which saw prices go up 6.4 percent compared to the year before. This is the eighth consecutive month that the inflation rate has dropped and the smallest yearlong increase since September 2021.
Obviously, 6 percent is still high, especially considering the Federal Reserve’s target of 2 percent inflation. But the pace of inflation is slowing, decreasing to a 0.4 percent increase in February compared to 0.5 percent in January.
Removing the price increases for food and energy, which are always volatile even before the Covid-19 pandemic and the war in Ukraine tied up supply chains, prices rose 5.5 percent compared to last February. This is the smallest yearlong increase since December 2021.
Mark Zandi, the chief economist at economic research group Moody’s Analytics, said inflation was “headed in the right direction.”
“Inflation is painfully high, but steadily receding. It is on track to be closer to 3% by year’s end, and the Fed’s inflation target by next summer,” he said on Twitter.
2. But inflation in key areas remains high.
Energy prices have been steadily decreasing over the past few months, which has contributed to the slowing inflation. Prices for fuel, gas, and electricity fell 0.6 percent from January.
But prices for food and shelter increased. Shelter, in particular, was the biggest contributor to prices hikes in February, with housing costs going up 0.8 percent. Part of that is due to the Fed’s aggressive campaign of raising interest rates, which has driven up mortgages even as home prices go down. People who own property are having to pay more, while people who can’t afford to buy are having to stay in the rental market. While rent costs have started to ease up, they’re still high due to high demand.
Costs for groceries went up 0.4 percent in February, and the price of eating out went up 0.3 percent.
3. What does this mean looking forward?
The Fed begins its policy-setting meeting Tuesday and was widely expected to hike interest rates by 0.25 percent for the second time.
The new CPI report is unlikely to affect that decision, but the Fed could be influenced by the recent closures of Silicon Valley Bank and Signature Bank. Regulators in California and New York, respectively, swooped in to shut down both banks after panicked customers began to withdraw their funds en masse.
Goldman Sachs chief economist Jan Hatzius predicted Sunday that the SVB and Signature failures would prompt the Fed to hold off on raising interest rates for now.
But Ian Shepherdson, chief economist at the consulting firm Pantheon Macroeconomics, thinks the Fed will stay the course.
“Assuming markets stay calm and no more banks fail, we think the Fed will hike” by 0.25 percent, he wrote in an analysis Tuesday.
“To be clear, we think further hikes are now unnecessary; the lagged effect of the increases over the past year are enough to push inflation back to target, but Fed officials have been unwilling so far to accept this argument.”
The U.S. central bank is scrambling to achieve a so-called soft landing, or a decrease in inflation without tipping the economy into a recession. The labor market has remained strong overall, causing concerns that the economy has not slowed sufficiently to avoid a downturn.
Dean Baker, senior economist at the Center for Economic Policy and Research, put the likelihood of a 0.25 percent hike at “50-50.”
“I think we have a very good shot [at a soft landing] as long as the Fed doesn’t get carried away,” he told The New Republic.
This post has been updated.