The data, which came as the Fed opened a two-day policy meeting,
painted a picture of sluggish economic growth in the first quarter
as unseasonably cold weather disrupted activity. A jump in building
permits last month, however, also offered cautious optimism for an
acceleration once the weather warms up.
"The economy is not too hot and not too cold. Winter was a difficult
season for housing and there are no signs that inflation is about to
pick up in a meaningful way," said Thomas Costerg, an economist at
Standard Chartered Bank in New York.
The Labor Department said its Consumer Price Index nudged up 0.1
percent for the second month in a row as a drop in gasoline prices
offset the largest rise in the cost of food in nearly 2-1/2 years.
In the 12 months through February, consumer prices were up only 1.1
percent, slowing from a 1.6 percent rise in January. The February
increase was the smallest in four months.
Stripping out the volatile energy and food components, the so-called
core CPI rose 0.1 percent for a third straight month. Its 12-month
gain held steady at 1.6 percent.
The Fed targets 2 percent inflation and it tracks an index that is
running even lower than the CPI. With inflation falling short of
their target, Fed officials are likely to bide their time before
raising benchmark overnight rates from zero.
Nevertheless, they have indicated they will press forward with plans
to wind down a separate bond-buying stimulus program.
"There isn't much to suggest inflation is about to make a move to
the upside or downside," said Michael Feroli, an economist at
JPMorgan in New York. "This should allow the Fed to remain
Fed officials are expected to announce another $10 billion cut to
their monthly bond-buying program when their meeting concludes on
Separately, a quarterly survey by the Business Roundtable found U.S.
chief executive officers somewhat more positive about the economy,
including plans for hiring and capital spending over the next six
months, although they expect only tepid growth this year.
When asked in a conference call if the CEOs felt they had pricing
power, AT&T Chairman and CEO Randall Stephenson said they were not
surveyed about pricing but added that he thought most were
experiencing "kind of a low inflation environment."
"We have all built our business plans around continued low
inflationary expectations," said Stephenson, who is also chairman of
the Business Roundtable.
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A drought in the western United States likely accounted for the 0.4
percent rise in food prices last month, the largest advance since
September 2011. There were big increases in the prices for meat,
fish, poultry, eggs, vegetables and fruits.
Within the core CPI, a 0.2 percent gain in the cost of shelter was
the major contributor to the rise in the index. There were also
increases in medical care, recreation and new vehicle prices. But
prices for tobacco, used cars and trucks, apparel and household
furnishings and operations fell.
In a separate report, the Commerce Department said housing starts
fell 0.2 percent to a seasonally adjusted annual rate of 907,000
units in February. Groundbreaking declined 11.2 percent in January.
Severe winter weather likely constrained building activity last
month, with starts in the Northeast region plunging 37.5 percent.
However, there were huge increases in the Midwest and South.
Housing lost momentum after a run-up in mortgage rates last summer.
High prices and a lack of properties on the market are also holding
back buying activity.
"We are probably due for a bounce in the coming months as the
weather normalizes, but questions linger about the underlying pace
of starts once the catch-up period is over," said Guy Berger, an
economist at RBS in Stamford, Connecticut.
Groundbreaking for single-family homes, the largest segment of the
market, rose 0.3 percent last month. Starts for the volatile
multi-family homes segment fell 1.2 percent.
Permits to build homes increased 7.7 percent to a 1.02 million-unit
pace, ending three straight months of declines. Permits for
single-family homes, however, fell 1.8 percent, while those for
multifamily units surged 24.3 percent.
"The gap between starts and permits is widening and since builders
don't pay the money for permits unless they expect to do something
with them, you can bet that once the warm weather returns, so will
the bulldozers," said Joel Naroff, chief economist at Naroff
Economic Advisors in Holland, Pennsylvania.
(Reporting by Lucia Mutikani; additional reporting by Lewis Krauskopf;
editing by Paul Simao)
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