Consumer prices barely rose in the past month as plummeting energy prices offset a stark increase in the cost of food items.
The Consume Price Index (CPI) rose 0.1 percent in February according to a report released by the Bureau of Labor Statistics, matching economists’ expectations of low levels of inflation. This represented a 1.1 percent increase in prices overall from last February. In January, that figure stood at 1.6 percent.
“Overall inflation still remains muted, in fact very muted,” said Russell Price, senior economist for Ameriprise Financial.
Price cited an uptick in food prices as responsible for what little inflation did occur in February. The food index increased 0.4 percent, its largest uptick since September 2011. The annual increase was less dramatic at only 1.4 percent from last year.
Overall, the drought in California was the main culprit behind 1.1 percent in price for all fruits and vegetables. And this month you actually could compare apples and oranges: both saw 3.4 percent spikes in price. Some produce items fared better though; including bananas and lettuce, which both went down in price.
Most striking though was the rising cost of beef, which saw a 4 percent surge. Beef roasts saw double that increase.
These numbers represented a ten-year high, a delayed reaction to another drought – one that hit the Midwest two years ago.
“That probably had the largest effect on the supply of beef in the past century,” said Lauren Nitschke, co-owner of Nitschke Natural Beef, which supplies grass-fed beef to supermarkets including Whole Foods.
This drought forced ranchers in states like Oklahoma and Texas to slaughter many cows two years ago, leaving us with fewer cows to eat now as herds struggle to come back to pre-drought numbers. And with increased international demand for American beef, higher prices will continue into the summer’s grilling season.
Penny-pinching carnivores, meanwhile, could find reason to smile in this week’s report. The price of bacon went down for the first time since October. Poultry prices also went down.
“We may see people making the decision to barbeque chicken,” David Berson, senior vice president and chief economist for Nationwide Economics, said.
Also witnessing a decrease in prices were drivers headed to the pump. A seasonally adjusted 1.7 decrease in gasoline prices helped stave off the major price hikes still seen in fuel oil and propane as a result of the continued cold weather. Overall, this meant energy prices actually fell by half a percent from January.
Looking to the core CPI, which excludes the price of food and energy, consumers saw the same 0.1 percent notch upward, echoing signs of an unhealthy economy.
Robert Brusca, chief economist for Fact and Opinion Economics, attributed much of this growth to the 0.2 percent increase seen in the service sector. Brusca said that services saw low prices as unemployment increased. Faced with less money and more free time, these people have fueled a do-it-yourself craze, which Brusca said is bad news for the services sector.
“If you’re going to do it yourself that means you’re not going to hire services like that renovation guy to fix up your kitchen,” Brusca said. With this month’s jobs report, which showed the economy added 175,000 jobs, he said we could see prices go up for services in future months.
The release of this month’s CPI report came just as the Federal Reserve’s Open Market Committee met to determine the central bank’s future moves. Brusca said that the current levels of inflation fell well below the Fed’s target of 2 percent, leading him to predict they will forge ahead with their current policies.
“If you think of inflation as some kind of barometer or diagnostic as to how the whole economy is doing, it doesn’t look like it’s doing very well,” Brusca said.