U.S. inflation increased 0.1% on a seasonally adjusted basis in February, the Bureau of Labor Statistics reported today, continuing a trend of very mild inflation for more than a year. Over the last 12 months, the Consumer Price Index for All Urban Consumers – (CPI-U), also called ‘headline inflation’ – increased just 1.1%.
An increase in the food index accounted for more than half of the increase in February. The food index rose 0.4% in February, but the overall energy index dropped 0.5%, with gasoline prices falling 1.7% in the month and 8.1% over the last 12 months. Apparel prices also fell 0.3% in the month.
Holders of Treasury Inflation-Protected Securities and I Bonds are also interested in the non-seasonally adjusted CPI-U, which is used to set the inflation adjustment to principal of TIPS and establish the future inflation-adjusted interest rate for U.S. Savings I Bonds.
In February, non-seasonally adjusted inflation rose 0.4%, but the 12-month rise was the same 1.1%. At the end of February the CPI-U index stood at 234.781, a 0.2% increase over where it stood at the end of September. One more month remains to determine the new six-month inflation-adjusted interest rate for I Bonds.
At this point the I Bond inflation rate will be set to an annualized rate of 0.4%, down substantially from the current six-month rate of 1.38%. At least it may not drop to 0.0%, which seemed possible last month.
Core inflation – which strips out more-volative food and energy – also increased 0.1% in February and 1.6% over the last 12 months.
Inflation continues to run well below the Federal Reserve’s goal of 2.0% a year and ‘danger’ level of 2.5%. But the Fed doesn’t seem concerned that its tapering of bond-buying stimulus could slow prices even further. Some of February’s softness could be weather-related; not much the Fed can do about that.