US consumer price index rises 0.4 per cent; beats forecasts

The US consumer price index (CPI) rose for the second sucesive month, climbing 0.4 per cent after a 0.3-per cent rise in January, the US labour department said yesterday. The monthly figure was also slightly higher than the 0.3 per cent rise that economists forecasted.

Excluding food and fuel, the core rate rose 0.2 per cent. The gains pushed the annual core inflation rate up to 1.8 per cent. These were projected to rise 0.1 per cent.

It came as a major relief for the market as the Federal Reserve has been working over time for the past several months to generate higher inflation as an antidote to stem deflationary risks.

The CPI is the broadest of the three monthly price gauges from the labour department, as it includes goods and services. It is the department's key measure of inflation.
Almost 60 per cent of the CPI covers prices consumers pay for services ranging from medical visits to movie tickets.

Prices rose 0.2 per cent from February 2008, up from no change in the prior 12-month period, which was the weakest performance since 1955.

Energy expenses increased 3.3 per cent, led by an 8.3 per cent jump in petrol prices. Still, the fuel's cost is down 36 per cent from a year earlier.

However, the price of essential items remained firm or down. Overall food prices, which account for about a fifth of the CPI, were down 0.1 per cent. Household energy prices, which do not include petrol, fell 0.2 per cent. Telephone and information services, which include cable television and Internet costs, were unchanged as well. Medical care prices rose 0.3 per cent, including a 0.6 per cent increase in drug prices.

New vehicle prices increased 0.8 per cent, the most since November 2004, and clothing costs jumped 1.3 per cent, the most in almost 19 years.

These increases were partially offset by cheaper air fares and hotel rates, and smaller increases in rents than in the prior month.

Today's figures also showed wages decreased 0.3 per cent in February after adjusting for inflation, and were up 2.5 per cent over the last 12 months.

Federal officials earlier said that they were more concerned about deflation than inflation over the medium-term. However, over the longer term, analysts fear that the massive fiscal and monetary stimulus being pumped into the economy may unleash inflation.

The rise in consumer prices follows a report on Tuesday that US wholesale prices rose in February for the second consecutive month.

The producer price index for finished goods increased by 0.1 per cent last month, trailing economists' forecasts. Compared with February 2008, wholesale prices were down by 1.3 per cent. Excluding food and energy, core producer prices rose by 0.2 per cent last month.

In a separate report, the commerce bepartment said the current account deficit declined to $133 billion in the fourth quarter from $181 billion in the third quarter. It was the lowest deficit in five years. Net financial inflows slowed to $77 billion from $147 billion.

The Federal Reserve in its meeting late yesterday announced about $1.1 trillion in additional measures to revive financial markets, including purchases of long-term Treasury securities, in a bid to stem the economic slump and prevent prices from declining.

The Fed said it would buy $300 billion in Treasury securities and increase its purchases of agency mortgage-backed securities by up to $750 billion in an effort to bolster housing. The central bank also kept its benchmark overnight rate unchanged within a range of zero to 0.25 per cent.

 Treasuries surged after the Fed announcement. Benchmark 10- year note yields plunged to 2.50 per cent in New York, from 3 per cent late yesterday. The Standard & Poor's 500 Index reversed early losses to close up 2.1 per cent at 794.35.