US consumer prices rise at slowest pace in over two years

US consumer prices rose at their slowest pace in 2½ years in February, reinforcing the Federal Reserve’s case for keeping interest rates on hold for the time being.

Data from the labour department show the consumer price index rose 1.5 per cent last month from a year ago. That’s down from the 1.6 per cent recorded in January, and is the weakest reading since September 2016.

Month on month, the CPI index rose 0.2 per cent, in line with expectations. Growth in core CPI, which excludes volatile food and fuel prices, also slowed, clocking in a 2.1 per cent year-on-year rise, compared to forecasts of 2.2 per cent.

February’s CPI was held back by a sharp retreat in fuel and energy prices. Gasoline costs are down 9.1 per cent on an annualised basis, while the overall energy component is 5 per cent lower for the period.

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The tame inflation reading will leave the Fed determined to stick to its wait-and-see approach to further interest rate rises this year after having raised them four times last year.

Officials have cited tepid price increases and headwinds from slowing global growth as reasons for their more cautious stance. A spate of recent economic data – including weak January retail sales and a disappointing February jobs report – have all bolstered the US central bank’s argument for taking a rate hike holiday.

The Fed’s favoured inflation gauge is the core personal consumption expenditures price index. In December, the most recent month of data, the core PCE price index rose 1.9 per cent year-over-year. The Fed has an inflation target of 2 per cent.

– Copyright The Financial Times Limited 2019