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Consumer prices rise in February

Food and energy costs help push the index up 0.4%. Inflation worries make a Fed cut unlikely.

March 17, 2007|From the Associated Press

WASHINGTON — Consumers paid more for energy, food and a host of other items in February as a sluggish economy failed to extinguish inflation pressures. But in a hopeful sign for growth, factory output posted a better-than-expected increase.

The Labor Department reported Friday that the consumer price index rose 0.4% last month, double the January increase, as energy prices shot up and adverse winter weather in Florida and California sent citrus prices soaring.

The increase was larger than the 0.3% rise analysts had expected, although core inflation, which excludes food and energy, rose just 0.2%, in line with forecasts.

But even there, economists saw problems with widespread increases in a number of categories including clothing, housing, education and medical care.

"Underlying inflation remains stubbornly above the Federal Reserve's target and these inflation figures put the Fed in a bind," said Mark Zandi, chief economist at Moody's

The Fed, which meets Tuesday and Wednesday, would like to cut interest rates to give the sluggish economy a boost, analysts said, but the central bank cannot do so because of the stubborn persistence of inflation pressures.

In a separate report, output at the nation's factories, mines and utilities increased 1% in February, led by a 6.7% surge in production of electricity and natural gas. The Fed report said this was the largest gain in utility output in 17 years and reflected colder-than-usual weather in February.

Manufacturing, which makes up four-fifths of industrial output, also showed strength, rising 0.4%, only the second increase in the last five months, a period when factories have been caught in the downdraft from weakness in housing and autos.

Auto production was up 3.2%, helped by an increase in light trucks, a sign that automakers may be getting control of their bulging inventories of unsold cars.

"The rise in industrial production is very good news after all the downbeat data in the past two weeks," said Nariman Behravesh, chief economist at Global Insight Inc., another private forecasting firm.

But other economists said it might take several months to reduce the backlog of unsold goods, particularly in industries supplying the slumping housing sector.

The industrial production report showed that various industries tied to housing -- appliances, furniture and carpeting -- suffered declines in February.

The widespread expectation is that Fed policymakers will leave interest rates unchanged next week even though the economy has slowed significantly in the last year.

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