Inflation
was muted in February and housing starts fell for a third straight month, with
many economists expecting the Federal Reserve to keep interest rates low even
as it scales back the amount of its bond-buying program.
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 economic activity. But a jump in building permits January offered
cautious optimism for an acceleration once the weather warms up.
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.
Fed officials are
expected to announce another $10 billion cut to their monthly bond-buying
program when their meeting concludes on Wednesday.
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.
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.