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A measure of inflation that is closely tracked by the U.S. Federal Reserve slipped last month in a sign that price pressures continue to ease.

The government reported Friday that prices rose 0.3 per cent from January to February, decelerating from a 0.4-per-cent increase the previous month in a potentially encouraging trend for U.S. President Joe Biden’s re-election bid. Compared with 12 months earlier, though, prices rose 2.5 per cent in February, up slightly from a 2.4-per-cent year-over-year gain in January.

Excluding volatile food and energy costs, last month’s “core” prices suggested lower inflation pressures. These prices rose 0.3 per cent from January to February, down from 0.5 per cent the previous month. And core prices rose just 2.8 per cent from 12 months earlier – the lowest such figure in nearly three years – down from 2.9 per cent in January. Economists consider core prices to be a better gauge of the likely path of future inflation.

Friday’s report showed that a sizable jump in energy prices – up 2.3 per cent – boosted the overall prices of goods by 0.5 per cent in February. By contrast, inflation in services – a vast range of items ranging from hotel rooms and restaurant meals to health care and concert tickets – slowed to a 0.3-per-cent increase, from a 0.6-per-cent rise in January.

The figures also revealed that consumers, whose purchases drive most of the country’s economic growth, surged 0.8 per cent last month, up from a 0.2-per-cent gain in January. Some of that increase, though, reflected higher gasoline prices.

Annual inflation, as measured by the Fed’s preferred gauge, tumbled in 2023 after having peaked at 7.1 per cent in mid-2022. Supply chain bottlenecks eased, reducing the costs of materials, and an influx of job seekers made it easier for employers to keep a lid on wage growth, one of the drivers of inflation.

Still, inflation remains stubbornly above the Fed’s 2-per-cent annual target, and opinion surveys have revealed public discontent that high prices are squeezing households in the U.S. despite a sharp pickup in average wages.

The acceleration of inflation began in the spring of 2021 as the economy roared back from the pandemic recession, overwhelming factories, ports and freight yards with orders. In March, 2022, the Fed began raising its benchmark interest rate to try to slow borrowing and spending and cool inflation, eventually boosting its rate 11 times to a 23-year high. Those sharply higher rates worked as expected in helping tame inflation.

The jump in borrowing costs for companies and households was also expected, though, to cause widespread layoffs and tip the economy into a recession. That didn’t happen. The economy has grown at a healthy annual rate of 2 per cent or more for six straight quarters. Job growth has been solid. And the unemployment rate has remained below 4 per cent for 25 straight months, the longest such streak since the 1960s.

The combination of easing inflation and sturdy growth and hiring has raised expectations that the Fed will achieve a difficult “soft landing″ – taming inflation without causing a recession. If inflation continues to ease, the Fed will likely begin cutting its key rate in the coming months. Rate cuts would, over time, lead to lower costs for home and auto loans, credit card borrowing and business loans. They might also aid Mr. Biden’s re-election prospects.

Michael Pearce, economist at Oxford Economics, said that even a 0.3-per-cent January-to-February uptick in consumer prices was probably still too hot for the Fed’s inflation fighters. The central bank has signalled that it expects to cut rates three times this year, and Wall Street investors have been eagerly awaiting the move. Mr. Pearce wrote that a June rate cut now looks more likely than the May cut that he and his Oxford colleagues had previously expected.

The Fed tends to favour the inflation gauge that the government issued Friday – the personal consumption expenditures price index – over the better-known consumer price index. The PCE index tries to account for changes in how people shop when inflation jumps. It can capture, for example, when consumers switch from pricier national brands to cheaper store brands.

In general, the PCE index tends to show a lower inflation level than CPI. In part, that’s because rents, which have been high, carry double the weight in the CPI that they do in the PCE.

Friday’s government report showed that Americans’ incomes rose 0.3 per cent in February, down sharply from a 1-per-cent gain in January, which had been boosted by once-a-year cost-of-living increases in Social Security and other government benefits.

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