Consumer prices in February pointed toward a stubbornly hot economy, with shelter and gasoline costs keeping temperatures rising above the Federal Reserve’s 2% inflation target.

February’s Consumer Price Index, released by the Bureau of Labor Statistics on Tuesday, increased by 3.2% over the past 12 months, exceeding economists’ predictions. The core CPI, a measure that excludes energy and food prices, met expectations of a 3.8% increase. Both measures of CPI and core CPI increased 0.4% from January. Schenker called the month-over-month increases in both indexes “more than modest.”

“This report does no favors for people who were expecting imminent Fed rate cuts,” said Jason Schenker, president of the financial forecasting firm Prestige Economics.

While February’s inflation report was higher than predicted, it is unlikely to sway the Federal Reserve’s plan to cut interest rates later in the year. Over the past several months, predictions of upcoming rate cuts have steadily ebbed from March, to May and now to June or later. Persistently inflated housing costs continue to be a thorn in the side of consumers and economists alike.  Energy costs, boosted by domestic refinery mishaps, were an additional driver behind month-to-month growth, with a 2.3% hike from commodities like gasoline and fuel oil. 

Gas prices rose across the country last month, particularly due to an unplanned power outage at an Indiana oil refinery that affected drivers’ wallets across the Midwest. Low said these market fluctuations due to refinery activity or domestic capacity problems are not unusual in a healthy economy, but they should not be ignored.

“When you start to see price pressure this early in the year, it implies it could get pretty bad in the springtime, when the refiners have to switch over to summer blends,” Low said. “So it’s something to bear in mind, that this inflation could linger for months.”

On top of domestic headaches, OPEC+ recently extended their market-pinching voluntary oil output cuts until June. This could cause additional trouble in the coming months, as Shenker predicts a summer of “unprecedented” travel demand driven by consumers who are largely employed and well paid.

Shelter costs remain a sticky piece of the inflationary equation. The shelter index, which includes both rent and owners’ equivalent rent, accounts for a quarter of total CPI. The index climbed 0.4% from January and 6% annually. Paired with energy, shelter costs contributed to 60% of the total gain in inflation, according to the BLS.

Housing affordability is an issue in cities nationwide, but nowhere is it more evident than Miami, Florida. A recent inflation report found that the metropolitan area encompassing Miami, Fort Lauderdale and West Palm Beach has the highest rate of inflation in the country. It is clear that increased immigration and overall market demand, paired with decreased rental vacancies and new construction, are pushing costs up.

According to data published by the Miami Association of Realtors, the media sale price of single family homes increased by more than 15% within the last year. A 2023 Redfin report found that only 1.7% of Miami-area homes were affordable. Miami’s economy is growing and creating jobs, but those jobs are largely low income sectors that can’t afford the competitive housing market, like tourism, service and construction.

“We have the very unfortunate honor of being the least affordable market in the country in terms of housing,” said Annie Lord, the executive director of the housing nonprofit Miami Homes For All.

Lord has seen Miami grow in both population and unaffordability since the early 2000’s. But she said the pandemic brought the city’s problems to the forefront. For the first time since 1970, Miami-Dade County’s population began shrinking, as residents departed for cheaper pastures.

“What the pandemic did was to make it unaffordable at almost any income,” Lord said.

Beyond energy and shelter, the report held upward movement in the cost of apparel, car insurance and airfares. Low said that ongoing shipping disruptions in the Red Sea and the Panama Canal are likely to blame for the uptick in clothing prices.

“We import a lot of clothing,” Low said. “So anything that contributes to higher global shipping costs, is probably going to mean higher apparel prices.”

But the February basket held some bright spots, too. Food prices remained on a steady, flat trend, pointing towards easing frustrations at the grocery store. Inflation in medical care and dairy products decreased.

The outlook for the U.S. economy is far brighter than it was in 2023, when price inflation peaked at 8% in March. The February data, however, revealed that further precipitous drops in inflation are not forthcoming. Economists like Schenker and Low look to June – or beyond – for rate cuts from the Fed.

“Obviously, every time we have a setback, it makes the next month’s inflation numbers even more important,” Low said. “And markets are going to be moving a lot on these inflation reports for the rest of the year.” 

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