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Inflation was higher than expected in February

ROB SCHMITZ, HOST:

Inflation was somewhat hotter in February than forecasters had expected, and that means the Federal Reserve is likely to take its time before cutting interest rates. Gasoline and rent were some of the big drivers of inflation last month. Meanwhile, grocery prices barely budged. NPR's Scott Horsley joins us now with the details. Hey, Scott.

SCOTT HORSLEY, BYLINE: Hi, Rob.

SCHMITZ: So what does today's report tell us about where inflation is headed?

HORSLEY: It's kind of a mixed bag. Gasoline prices jumped pretty sharply last month, helping to fuel inflation, but the price of a lot of other goods has been leveling off or even coming down a little bit. Where we continue to see upward pressure on prices is mostly in services - things like restaurant meals or airline tickets - and, once again, housing. Forecasters don't think housing inflation is going to continue at this rate based on what we've seen in the real-time rental market. Rents are just not going up as fast as they had been. Chief economist Gus Faucher of PNC Financial Services Group says eventually the government's inflation numbers should reflect that.

GUS FAUCHER: Certainly the Fed would like to see some more progress, and I think we will see some more progress. It's just going to take some time.

HORSLEY: Overall, consumer prices in February were up 3.2% from a year ago. That's a big improvement from the nine-plus percent inflation we had back in 2022. But it's higher than January's inflation reading was, and it's higher than the Federal Reserve would like.

SCHMITZ: But there was some good news at the supermarket, though. Tell us about that.

HORSLEY: Yeah. Grocery prices were basically flat between January and February, and they're only up about 1% over the last 12 months. That's partly because food producers have worked out some of the kinks in their supply chains that had been pushing prices up. There are also signs that shoppers are getting more sensitive about what they put in their grocery carts. You know, a lot of people have hit their limit and said they're just not going to buy some products that have gotten too expensive, or they're going to switch to cheaper store brands. David Ortega says he's witnessed this changing behavior both as a food economist at Michigan State University and as a dad who shops for his own family.

DAVID ORTEGA: We have two daughters, and they're very hungry. They're growing kids. And we're having to look for some of the value items at the grocery store because our grocery bill has increased significantly over the past four years.

HORSLEY: Yeah. Even though grocery prices have leveled off over the last year, there's still up about 17% from pre-packed levels. And a lot of shoppers are balking at those high prices. I've started to notice a lot more stickers in the grocery store advertising discounts, which is something we didn't see a lot of for a while. The other encouraging news is over the last four years, average wages have risen faster than prices. So as painful as this inflation has been, the typical worker now has more buying power than he or she did before the pandemic.

SCHMITZ: So, Scott, how did financial markets react to today's inflation news?

HORSLEY: Investors seem to take this hotter-than-expected report in stride. The Dow Jones Industrial Average jumped 235 points. Investors are still betting the Fed will start to cut interest rates by June. You know, between now and then, we're going to have three more months of inflation data. We'll have three more months to take the temperature of the job market. If the economy continues to hum along during this period and prices continue to moderate, then forecasters think the Fed will feel confident that it can start to take its foot off the brake and not run the risk of inflation roaring back.

SCHMITZ: That's NPR's Scott Horsley. Scott, thank you.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

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Scott Horsley
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.