Consumer Prices Jump In February

On the heels of a report showing food and energy prices surging at the producer level, the Labor Department reported today that the Consumer Price Index, a snapshot of the prices consumers pay for goods and services, shot up 0.5 percent last month.

Consumers' costs for gasoline and food were sharply higher last month. When the volatile food and energy sectors are withdrawn, the "core" inflation rate was a more modest 0.2 percent.

While food and energy costs were responsible for most of the consumer pain last month, other sectors of the economy did their part. Medical expenses, which had been tame recently, did a turnaround and moved sharply higher. The cost of buying a new car also went up, as manufacturers offered fewer incentives.

Rising cost of fun

Recreation expenses and education costs were higher last month, but there were a few areas where consumers caught a break. Clothing prices were lower, despite the recent run-up in cotton prices. The cost of housing was also lower.

While last month's core inflation rate appears, on the surface, rather tame, economist Joel Naroff of Naroff Economic Advisors, of Holland, Pa., thinks that's not telling the full story.

Artificially low core inflation rate

"We may be seeing an artificially low core rate," Naroff said.  "Basically, what we need is an overall index and one that measures what I refer to as 'high frequency expenditures,' which are those that household make on an ongoing basis.  Essentially, for homeowners and renters who don't buy a vehicle or a computer each month, this index means nothing."

For consumers, food and energy costs may be the most visible signs of inflation, and the ones that actually have the most impact. Energy prices have risen 9.8 percent at the consumer level over the last three months. Food costs haven't risen as much, but are still significant. The cost of food consumed at home has risen nearly three percent over the last 12 months.

Naroff says the Federal Reserve is in a very tough situation where inflation pressures are building but growth uncertainties have accelerated.  The members are coming down on the side of growth. As a result, says Naroff, inflation may follow the economy as it builds toward a recovery.