Consumer Prices Up Slightly

March 16, 2006 — -- The government's monthly look at consumer prices shows a marked slowdown in price increases across the nation, a sign that core inflation is slowing after two years of interest-rate hikes.

The Bureau of Labor Statistics says that prices at the retail level increased by 0.1 percent during February, exactly what economists were expecting. January's 0.7 percent increase -- the fastest pace in four months -- was not revised.

Today's move down was driven primarily by a 1.2 percent reduction in the price of energy products, which had posted a 5 percent increase during January. The moderation reflected a 1 percent drop in gasoline pump prices, a 2.8 percent fall in home heating oil costs, and a 4.5 percent drop in the price of natural gas, which was the biggest decline in more than four years. Over the last year, energy prices have increased an amazing 20.1 percent according to today's report.

The gains in food prices also slowed in February to an increase of 0.2 percent, compared to a 0.5 percent jump in January. Vegetable, poultry and dairy prices all fell, helping to offset increases in the price of fruit and pork.

Outside of the volatile energy and food sectors, so-called core inflation was also well-behaved during February, rising by a slight 0.1 percent, after a 0.2 percent gain in January.

As goes energy, so goes the Consumer Price Index. Today's report didn't offer any surprises and seems to reinforce the idea that inflation at the retail level is relatively in check.

The report was seen as moderately important. The unsurprising nature of the report doesn't make it all that newsworthy, but because it's fairly bullish, the markets will use it to goose stocks up today.

What is the CPI? The Consumer Price Index measures the retail prices of a fixed basket of goods and services from month to month. Shoppers actually go out and buy the "basket" at retail establishments across the country to complete the survey.

Wire services contributed to this report.