‘Headline’ inflation – properly called Consumer Price Index for All Urban Consumers (CPI-U) – rose a very sharp 0.7% in February, the Bureau of Labor Statistics reported this morning. It was the biggest monthly rise since June 2009.

This was somewhat expected, because gas prices have risen sharply in the last two months. Gasoline prices – up 9.1% in February – accounted for about 3/4 of the overall increase in prices, the BLS said. The food index was up a tame 0.1%.

Read the CPI summary from the BLS.

Headline inflation is important, because it is the number (minus seasonal adjustment) used to adjust the principal on TIPS holdings and to set the future inflation-adjustment interest rates on I Bonds.

Without the seasonal adjustment, CPI-U rose 0.8% in February. Today’s number sets inflation over the last 12 months at 2.0%, up from 1.6% in January.

Here’s a summary of month-by-month changes in headline inflation:

The Federal Reserve watches ‘core’ inflation more closely, stripping out the volatile food and energy indexes. Core inflation was mild in February — 0.2% versus 0.3% in January. For the last twelve months, it is running at 2.0%, still giving the Fed room to continue monetary stimulus.

The takeaway for TIPS  holders is … you got a 0.8% boost to your holdings, long overdue after four months of zero inflation. What’s ahead? Gasoline prices have been moderating, and today’s coverage by the Associated Press downplayed inflation fears:

“Aside from the spike in gasoline prices, which is already being reversed, it is hard to find any evidence of major price pressures,” said Paul Dales, senior U.S. economist for Capital Economics.