Inflation rose modestly in February, nudged by an increase in gasoline prices that lifted the overall Consumer Price Index by 0.4 percent.
Excluding the volatile food and energy categories, the index rose by 0.1 percent, the Labor Department reported Wednesday morning. With the prospect of faster economic growth on the horizon, investors and market watchers have been paying close attention to the threat of heightened inflation, although it has yet to materialize for the most part.
The imminent passage of the Biden administration’s $1.9 trillion stimulus package has intensified those worries, with some concerned that the money will pour fuel on an economy that is already poised to heat up as businesses reopen this spring and the pandemic recedes in the face of widespread vaccinations.
Gasoline prices alone were up 6.4 percent in February. But over all, the data matched expectations, suggesting inflation remains under control, despite a recent rise in prices for commodities like oil and copper.
“Outside of another buoyant advance in energy prices in February, consumer price inflation remains very tame,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics.
Over the long term, inflation is a concern because it erodes the value of assets, especially stocks and bonds. An uptick in bond yields in recent weeks, which correlate with inflation fears, helped prompt a sell-off on Wall Street, particularly among high-flying tech stocks.
What’s more, once inflation becomes entrenched it can be hard to subdue, reawakening memories of the 1970s, when rampant inflation haunted the American economy.
But conditions are far different than they were back then, and most mainstream economists doubt a sustained bout of inflation is on its way. The Federal Reserve, which is committed to preserving price stability, has signaled that it intends to maintain its support for the economy and not tighten monetary policy anytime soon.
“The inflation narrative has switched to concerns about rising prices,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “For the Fed, price response to the economy reopening is seen as transitory and is unlikely to cause too much angst, given inflation pressures are not expected to be sustained.”
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