Washington, DC, Apr. 1--U.S. inflation in the pipeline eased in February, validating the Federal Reserve's judgment that it can keep interest rates low until it sees a clear recovery in the job market.
The producer-price index for finished goods rose 0.1% in February, slowing from a 0.6% rate in January, the Labor Department said Thursday in a report it delayed for nearly a month because of statistical difficulties.
The slowdown mostly reflected a moderation in energy prices, which grew 0.2% after a 4.7% increase in January. But other prices also grew more slowly: the closely watched "core" index, which excludes both energy and food items, rose just 0.1% after a 0.3% gain in January.
The numbers surprised Wall Street, where economists surveyed by Dow Jones Newswires and CNBC had called for a 0.4% increase in the overall index and a 0.1% gain in core prices. But the report confirmed the views of many Fed policy makers who say it is not yet clear that inflation rates have stopped declining.
Economists say the PPI, which reflects prices paid by factories, mines and utilities, can foreshadow changes in consumer prices about six months down the road. Investors pay close attention as a result. But Fed policy makers still expect inflation to recede slightly this year, and say they're disinclined to raise interest rates while the job market remains weak.
"I think policy action can await convincing evidence that labor market slack is on a declining trend and that inflation is no longer decreasing," Fed Governor Donald Kohn said in a speech last week. Most economists predict the Fed won't raise interest rates until the end of the year.
The Labor Department originally was slated to release February PPI data on March 12, but postponed it because of statistical difficulties encountered while switching to a complex new system of classifying the scores of industries whose prices are reflected in the index. Officials said the problems stemmed in part from the use of antiquated computer systems. The department has said it isn't yet sure when it will release the data for March.
In its report Thursday, the department said the slowdown in producer prices in February reflected a moderation in prices of most major items. Home heating-oil prices declined 7.7%, the biggest decline in five months. Gasoline prices rose 2% after a 14.1% gain in January. But food prices rebounded, growing 0.2% after a 1.4% decline in January.
Inflationary pressures moderated in annual terms. In the 12 months that ended February, producer prices were up 2.1%, down from an annual rate of 3.3% in January. The core index was up 1% in annual terms, slightly higher than a 0.9% rate in the 12 months that ended January.
Further up the production pipeline, prices of crude, or unprocessed, goods rose 2.5%, slowing after a 2.8% gain in January. Prices of intermediate goods rose 0.9%, up slightly from 0.8% in January.
