By Harini Chakrapani
Core consumer prices rose as Americans continued to pay more for rent and medical care in February.
The core consumer price index (CPI) which excludes the volatile food and energy components, was up 0.3 percent, holding its gain from January and higher by 2.3 percent compared to prices a year ago according to the Labor Department.
However, though the core consumer prices were high, the overall inflation fell by 0.2 percent due to gas prices.
Gas prices plummeted by 13 percent from January.
Economists said that the decline in CPI due to energy wouldn’t last since oil prices have already risen.
“Gasoline prices will plummet, but they will start to pick up again in the next few months,” said David Sloan, senior economist at 4cast.
The U.S. crude prices climbed to $38.46 a barrel, up 5.8 percent. Analysts predicted the price to surge to $45 in the coming months.
Yet, the gain wasn’t reflected in the overall CPI since gasoline prices are bought ahead of time by gas service stations.
“The price of gasoline at the pump today reflects what the gas service station paid for when they contracted to bring that gas to the station. So, there’s going to be a lag between, a rise or fall in oil prices and a subsequent rise or fall in gasoline prices,” explained Kurt Rankin, Vice President and economist at PNC Financial Services Group.
Rising inflation, signals the Federal Reserve is likely to increase interest rates as the economy is nearing the Fed’s target 2 percent inflation.
However, at its March 16 meeting, the Fed decided not to raise the benchmark interest rate, citing global economic concerns.
Economists believed a rate hike by 0.25 percent would be initiated in June.
“The recent numbers have shown that the labor market is still healthy, and hinted that inflation has started to pick up. That combination should encourage the Fed to raise interest rates in June,” said Sloan referring to the 242,000 jobs that were added in February as the unemployment rate held steady at 4.9 percent.
Although, inflation means higher costs and higher expenses for Americans, it is needed to spur the economy.
As prices go up, companies enjoy higher profits, make more investments and employ more people to support and drive their businesses.
Last month, medical care and rent costs took a large bite out of consumers’ wallets.
Physician and hospital service costs picked up pace by 0.3 and 0.5 percent from January.
Medical Billing Advocates of America, a Virginia based advocacy group that analyzes patients’ bills said that ER costs had spiraled out of control.
“It used to be that an uninsured person could go to the ER and expect a $1,500 bill at the most. Now we are seeing patients being billed for tens of thousands of dollars for very simple services and procedures in the ER,” said Tina Pashley, director of public relations and Vice President Christie Hudson via email.
They also noted price increases in specialized cardiovascular, chemotherapy drugs and certain antifungal IV medications.
Rent costs remained high in February, just as the previous month at 0.3 percent.
According to Skylar Olsen, Senior Economist at online real-estate listing service Zillow, San Jose, San Francisco, Seattle, Denver, Portland and Miami saw double-digit price appreciation in 2015.
Olsen attributed the rent increases to falling vacancies and rising demand in metro areas.
“It has to do with strong job growth. These areas have some of the lowest unemployment rates in the country, and offer high paying tech jobs,” said Olsen.
According to Olsen those most affected by rising rents were disadvantaged minorities and the country’s youth.
“You are looking at the younger set of the population, delaying marriage and baby, putting off buying a home, driving up demand and hence rents,” she said.
February offered reprieve for airline flyers. Fares declined by 0.1 percent after a strong surge in January.
According to Expedia’s air travel outlook, ticket prices for travel within Europe fell by 17 percent in 2015 compared to 2014.
Expedia expected the trend to continue in the first few months of 2016 owing to the strength of the U.S. dollar against the euro.
Economy air travel from North America to Asia also remained cheap in 2015, falling by 13 percent compared to 2014.
Economist Kurt Rankin at the PNC Financial Services Group believed the downturn was short term, since jet fuel prices are based on oil prices and oil prices have been low.
“Offsetting that trend is the US consumer who is still doing quite well. We may very well see more demand for airline tickets in the summer, leading airlines to raise prices, or keep them from going down, despite costs going down related to oil,” said Rankin.