WASHINGTON – Consumer prices shot up by 0.6 percent in February, the largest rise in two years. The prices of gasoline and other energy products soared as the United States headed into a war with Iraq.
The latest reading on the Consumer Price Index, the government's most closely watched inflation measure, showed prices in February rising twice as fast as January's 0.3 percent advance, the Labor Department reported Friday.
The worst price jumps seen in February, however, were largely limited to energy. Excluding increases in energy prices, the "core" rate of inflation inched up just 0.1 percent for the second straight month. That suggested that most other prices are well behaved.
While the rise in all consumer prices was slightly faster than the 0.5 percent increases economists were expecting, the showing on the "core" inflation rate was a a bit better than the 0.2 percent rise that was forecast.
Higher energy prices and uncertainties surrounding the Iraq situation are the biggest factors restraining economic activity, Federal Reserve Chairman Alan Greenspan and his colleagues said earlier this week.
But as those negative forces lift, the economy should do better, Fed policy-makers said in deciding Tuesday to hold interest rates at 1.25 percent, a 41-year low.
With consumers paying more to fill up their tanks and heat their homes, they have less to spend on other things. Consumers also have turned cautious amid worries related to the war, a stagnant job market and a turbulent stock market. Consumer spending is one of the main forces keeping the economy going.
On the energy front, private economists are predicting that if the war with Iraq is over quickly with minimum damage to oil fields, energy prices should quickly retreat, just as they did after the first Persian Gulf War in early 1991.
Crude oil prices eased in early trading on world markets Friday despite the British government's report of fires at 30 Iraqi oil wells.
May contracts of North Sea Brent, Europe's benchmark price for crude, fell 37 cents to $25.13 a barrel by midmorning in London. Contracts of U.S. light, sweet crude for May delivery were 67 cents lower at $27.45, in electronic, pre-session trading in New York.
In Friday's CPI, all energy prices jumped by 5.9 percent in February, up from a 4 percent increase in January.
Gasoline prices rose by a sharp 9.9 percent last month, the biggest increase since June 2000.
Gasoline prices climbed this week to a national average of $1.73 a gallon, a record high, the Energy Department said Monday. Prices at the pump are expected to move higher because of tight supplies and high crude oil costs.
The CPI also showed that fuel oil prices soared 15.8 percent and natural gas prices increased 5.5 percent in February.
Food prices, meanwhile, shot up 0.7 percent in February, a reversal from a 0.2 percent decline registered in January. The rise in food prices last month was the sharpest since June 1996.
The increase was led by a steep rise in the price of beef and veal, which went up by 3.3 percent in February, the biggest one-month increase since January 1984.
Elsewhere in the report: prices for clothing dipped by 0.2 percent, new car and truck prices edged down 0.1 percent and prescription drug prices fell by 0.3 percent in February.
Prices for airfares, however, rose 1.2 percent last month.