CPI RISES 0.4% AS FOOD, ENERGY PRICES CLIMB
By Rex Nutting 11:45 AM ET Mar 16, 2007 WASHINGTON (MarketWatch) -- Keeping the pressure on the Federal Reserve, U.S . consumer prices increased 0.4% last month, led by higher prices for food, energy, shelter and tobacco, the Labor Department reported Friday. Core prices, excluding food and energy, increased 0.2% in February. The 0.4% gain in the consumer price index was a tenth of a percentage point higher than economists surveyed by MarketWatch had anticipated. The core CPI came in as expected. See Economic Calendar. Core inflation, up 2.7% in the past year, "is still too high for the central bank's taste," wrote Avery Shenfeld, an economist for CIBC World Markets, in a research note. In a separate report, the Federal Reserve reported that industrial production soared 1% in February, led by a 6.7% gain in utility output. Capacity utilization rose to 82%. Output and utilization rates were well above expectations. See full story. Also, the Reuters/University of Michigan consumer sentiment index fell to 88.8 in March, the lowest in six months. Inflation expectations were unchanged. See full story. After the report, Treasury bond prices fell slightly. Stocks were lower at mid-day. See Market Snapshot. The CPI rose 0.2% in January, and core prices rose 0.3%. Food prices jumped for the second straight month, rising 0.8% -- the largest gain in nearly two years. Prices for fresh fruit rose 5.7%, the most in 19 years, while fresh vegetable prices also rose by 5.7%. Read the full government report. Cold weather in California has damaged some crops, sending prices higher. Corn -- a primary input for many food items -- has also increased in price as more of the crop gets earmarked for ethanol production. In the past three months, food prices have risen at a 6.1% annual rate. Energy prices rose 0.9% in the month, including a 0.3% rise in gasoline prices. Natural-gas prices advanced 5%, the biggest increase since October 2005 after Hurricane Katrina took put much of the nation's stockpiles out of commission. In the past year, consumer prices are up 2.4%, while core prices are up 2.7% , unchanged from last month's 12-month increase. Core prices have risen at an annual rate of 2.6% in the past three months, well above Fed policymakers' implied target zone of about 2.25% for the core CPI. The hotter-than-desired CPI could keep the heat on the Federal Open Market Committee to maintain a bias toward raising rates to keep inflation under control. Fed officials, scheduled to review economic conditions and monetary policy on March 20 and 21, have said they believe inflation, not slower growth, remains the greatest risk to a stable economy. No change is expected to be made in the FOMC's 5.25% overnight lending target rate. See our complete coverage of the Fed. The report "rules out any chance" that the FOMC would adopt a more neutral policy at next week's meeting, wrote Richard Moody, chief economist for Mission Residential, in a research note. In a separate release, the Labor Department said real (that is, inflation-adjusted) weekly earnings fell 0.3% in February and are up 1.5% in the past 12 months. Real hourly earnings were flat and are up 1.8% in the past year. Details ----------------------------------------------------------------------- February's CPI report showed price increases mixed outside of food and energy. Housing costs rose 0.4%, while owners' equivalent rent, the government's measure for owner occupied housing costs, grew 0.3% after an unusually tepid 0.2% gain in January. Rent of residence increased 0.4%, while hotel and motel rates rose 0.1%. Medical care prices rose 0.5% in February, although prescription drug prices fell 0.4%. Physician services and hospital services prices rose 0.6%. Transportation prices rose 0.1%. New car prices eased 0.1%, while airfares rose 0.9%. Apparel prices rose 0.5%, the largest gain since September. Apparel prices, which had fallen for most of the past decade, are up 2.1% in the past year, the fastest growth in 14 years. Tobacco prices rose 1%. -----------------------------------------------------------------------
