U.S. inflation rose in February on higher gasoline and apparel prices, government data showed on Wednesday, indicating some pricing power in the recession-hit economy and easing fears of deflation for now.

In another snapshot of the U.S. economy, the Commerce Department said the U.S. current account deficit for the fourth quarter contracted sharply as imports fell more rapidly than exports.

But it was the Labor Department’s Consumer Price Index that attracted the most attention. Analysts said that while the CPI data showed the risk of a persistent, broad decline in prices was fading, it did not indicate a resurgence of inflation, given the deep slump the economy is in.

In February, the overall CPI rose 0.4 percent, the biggest monthly gain since last July, and above January’s gain of 0.3 percent.

“Kiss the idea of deflation goodbye. The brief foray into declining consumer prices over the winter seems to be over and done with,” said Howard Simons, strategist at Bianco Research in Chicago.

About two-thirds of the rise in February’s inflation rate came from the 8.3 percent jump in gasoline prices.

Compared with a year ago, consumer prices rose 0.2 percent after being flat in January.

Core CPI, which excludes volatile food and energy prices, gained 0.2 percent in February, above the forecast for an increase of 0.1 percent.

U.S. stocks were mixed, with the Dow industrials down with oil prices and some energy companies’ shares. The Nasdaq composite index rose on a report that IBM was in talks to buy computer maker Sun Microsystems.

In contrast, U.S. government bond prices benefited from mostly lower stock indexes as investors made a safe-haven bid for Treasuries. The U.S. dollar was down against major currencies before the Federal Reserve’s announcement this afternoon that may include more steps to stimulate the economy.

The Fed is expected to leave the target for its benchmark overnight fed funds rate unchanged in the range of zero to 0.25 percent.

But the statement accompanying the Fed’s decision will be watched for indications on whether the central bank will start buying Treasuries to damp down interest rates and help revive an economy in recession since December 2007.

Source: Reuters

Related Items