Inflation heated up a bit in February

— -- Inflation rose in February, however, the 18% boost is gasoline prices since December, is still not showing much impact on consumer prices.

The consumer price index rose 0.4% for the month, driven by a spike gain in energy costs, the Labor Department said Friday. However, the core inflation measure that excludes energy and food prices rose 0.1%. Gas prices accounted for all of the gains in energy, as the price of home heating and natural gas continued to fall. Still, the small gain in core inflation suggests companies continue swallowing the impact of gas price increases before they reach consumers.

Economists had expected inflation to rise 0.5%, with a 0.2% core-inflation gain, according to a Bloomberg survey. Accelerating consumer spending and improving job markets have blunted the impact of higher gas prices so far, as consumers have added debt and eaten out more in recent months, but worries remain about what might happen if gas prices, now an average of $3.88 for all grades of fuel, pass $4 or even approach $5 a gallon.

"Firms are reluctant to raise prices to consumers, because the demand isn't there and consumers are price-sensitive," PNC Financial economist Gus Faucher said. "Profit margins have been good enough that they can take a little hit'' by absorbing most fuel-price hikes themselves, he said.

Broader inflation remains muted despite the surge in gasoline for several reasons.

First, the decline in natural gas prices to a 10-year low, thanks to new supplies emerging from previously unexploited shale deposits, has left overall energy inflation at 6% for the 12 months ending in January, well below the 10% jump in gasoline and heating oil. Second, food inflation has been modest, with prices rising at a 2.1% annual clip from September through January.

Relatively moderate inflation has helped convince the Federal Researve to keep its key interbank lending rate near zero to stimulate the economy. On March 13, the Fed reiterated its intention to keep rates "exceptionally low" through late 2014.

The 0.4% gain in producer prices for February, announced March 15, was concentrated in so-called intermediate goods, or products meant to be used to make something else, as prices for finished products rose only 0.1%. That also suggests companies are finding ways to avoid passing along their increases in fuel costs, Faucher said.

Inflation has been slowing in recent months, after surging earlier in 2011, Moody's Analytics Chief Markets Economist John Lonski said in a note to clients before today's report.

"Though the 2.9% yearly change of the CPI in January breeds discomfort, this value has fallen from last year's high of 3.9%," Lonski wrote.