Consumer prices unchanged in Feb., but don't cheer yet

WASHINGTON -- The government's consumer price index was unchanged in February, a better-than-expected showing after months of higher prices, but consumers are still feeling low, reports out Friday said.

In a speech later Friday, President Bush acknowledged that the economy is troubled.

The Labor Department said its consumer price index, the most widely used gauge of inflation, was flat last month after rising 0.4% in January. Even more significant, core consumer prices, which exclude food and energy items, were unchanged in February after climbing 0.3% a month earlier.

It was the mildest reading in six months for consumer prices. The relief is expected to be short-lived, however, given that energy prices have resumed their upward climb.

Economists had expected a 0.3% increase in the overall index.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, said the February performance on inflation may mean that "at least some of the inflation hysteria can now subside."

The Reuters/University of Michigan Surveys of Consumers index of confidence slipped to 70.5 in early March from the final February reading of 70.8. Economists polled by Reuters had predicted a lower figure of 69.0. Long-term inflation expectations however cooled a bit.

"There was nearly unanimous agreement among consumers that the economy was now in recession," said Richard Curtin, director of the survey.

One-in-five households in the latest survey said they have delayed buying vehicles and big-ticket items, blaming income uncertainty. Overall, buying attitudes toward vehicles and durable goods match the same low levels as during the 1990 recession.

The inflation report showed energy prices fell 0.5% in February, a sharp reversal from January's 0.7% gain and the first decline since August. Transportation prices were down 0.7% following a 0.5% December gain.

In the 12-month period through February, consumer prices overall rose 4%, a moderation from the 4.3% gain registered in January and the smallest year-over-year increase since October, according to department officials.

Food costs, which have been surging, moderated a bit in February, rising 0.4% following a huge 0.7% jump in January.

The price of vegetables, fruit, poultry and pork all declined. But the price of cereal and bakery products shot up 1.8%, largest monthly increase since January 1975. Part of the rise in food costs reflects higher energy prices, which raise transportation costs. Also food prices have been under upward pressure because of the increased demand for corn to use in production of ethanol.

The flat reading for core inflation in February left underlying inflation rising 2.3% the past 12 months, still above the Federal Reserve Board's comfort range of 1% to 2%.

But the good reading in February should bolster the view that the central bank will move aggressively to cut interest rates Tuesday in an effort to battle spreading economic weakness.

Many private analysts believe the Fed will cut rates as much as a half-point to three-fourths of a point, seeking to either prevent a recession or moderate its effects.