Washington, DC, Mar. 21--Consumer prices jumped 0.6% in February, the largest rise in two years. The prices of gasoline and other energy products soared as the U.S. headed into a war with Iraq.
The latest reading on the Consumer Price Index, the government's most closely watched inflation measure, showed prices in February rising twice as fast as January's 0.3% advance, according to the Labor Department.
The worst price jumps seen in February, however, were largely limited to energy. Excluding increases in energy prices, the core rate of inflation inched up just 0.1% for the second straight month. That suggested that most other prices are well behaved.
“When it comes to oil, the fear of war drove up prices and the actual war seems to be unwinding the gains,” said economist Joel Naroff, president of Naroff Economic Advisors.
While the rise in all consumer prices was a little greater than the 0.5% increase economists were expecting, the showing on the core inflation rate was a bit better than the 0.2% rise that was forecast.
Higher energy prices and uncertainties surrounding the Iraq situation are the biggest factors restraining economic activity, according to Federal Reserve chairman Alan Greenspan. But as those negative forces lift, the economy should do better, Fed policy-makers said in deciding Tuesday to hold interest rates at 1.25%, a 41 year low.
With consumers paying more to fill up their tanks and heat their homes, they have less to spend on other things. Consumers also have become cautious amid worries about the war, a stagnant job market and a turbulent stock market. Consumer spending has been one of the main forces keeping the economy going.
On the energy front, private economists are predicting that if the war with Iraq is over quickly with minimum damage to oil fields, energy prices should quickly retreat, just as they did after the first Persian Gulf War in early 1991.
All energy prices rose 5.9% in February, up from a 4% increase in January. Gasoline prices shot up 9.9% last month, the biggest increase since June 2000. Fuel oil prices soared 15.8% and natural gas prices increased 5.5% in February.
Gasoline prices climbed this week to a national average of $1.73 a gallon, a record high, according to a report from the Energy Department on Monday. Prices at the pump are expected to move higher because of tight supplies and high crude oil costs.
Food prices jumped 0.7% in February, a reversal from a 0.2% decline registered in January. The rise in food prices last month was the sharpest since June 1996. The increase was led by a steep rise in the price of beef and veal, which went up 3.3% in February, the biggest one month increase since January 1984.
Elsewhere in the report prices for clothing dipped 0.2%, new car and truck prices edged down 0.1% and prescription drug prices fell 0.3% in February. Prices for airfares, however, rose 1.2% last month.
