Core inflation barely budges in February--but headline consumer price inflation hits a 2.9% annual rate

03/16/2012 2:08 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Headline inflation rose by 0.4% in February. That was a jump from the 0.2% increase in the Consumer Price Index in January and the biggest increase in consumer prices since April 2011.

The big culprit was the cost of energy. Gasoline prices rose 6.0% in the month and accounted for 80% of the increase in headline inflation.

Core inflation—which doesn’t include volatile food and energy prices—rose 0.1% in February. That was actually a drop from the 0.2% increase in January.

Economists surveyed by Briefing.com had expected the headline inflation number to show a 0.4% increase in February. Economists surveyed by Bloomberg had projected that the core rate would climb by 0.2%.

The Federal Reserve watches the core inflation number and there’s nothing in the less than projected 0.1% increase in core inflation in February to make Ben Bernanke and company rethink their commitment to keeping short-term interest rates at 0% to 0.25% through the end of 2014. Inflation, by this measure, is under control.

The worry these numbers have likely created at the Fed is, in fact, in the other direction—they show a significant drag on growth from higher energy prices that may slow the economy.

And it’s not just gasoline prices. Headline inflation is now running at an annual rate of 2.9%--that’s the same rate as in January. But at that inflation rate, according to data from the Labor Department released today, hourly earnings adjusted for inflation fell 0.3% in February and are now down at an annual rate of 1.1% over the past 12 months.

Falling real earnings do pose a very big danger to a recovering U.S. economy—even if aggregate earnings are rising for the country as a whole as more people move from unemployed to working.

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