Declining energy prices masked other increases to drive annual US inflation to its lowest rate in two years (PAUL J. RICHARDS)

Washington (AFP) – The falling price of energy drove US consumer inflation in February to its slowest annual pace more than two years, according to government data released Tuesday.

The dip in the Consumer Price Index marked the seventh straight decline, and supports the Federal Reserve’s recent decision to pause interest rate increases until further notice.

However, weakening fuel prices masked increases in the costs for food and shelter, medical care, according to the Labor Department report.

Compared to February of last year, CPI rose 1.5 percent, down from 1.6 percent in January, driven by a five percent drop in energy, which was the largest decline in two and a half years.

The annual inflation measure has been steadily declining since July. 

Excluding the volatile food and fuel categories, CPI slowed to 2.1 percent, after three months of 2.2 percent gains.

Prescription drug costs fell 1.2 percent compared to February 2018, offsetting rising costs of hospital services and doctors’ fees, along with a 3.4 percent jump in shelter, up from 3.2 percent in January.

Monthly inflation was 0.2 percent compared last month to January after being flat for three months, matching economists’ expectations. But excluding food and fuel costs, the core CPI fell short of a forecasts, rising only 0.1 percent.

Ian Shepherdson of Pantheon Macroeconomics said he expected the 12-month CPI measure to remain tame until the middle of this year, when low unemployment is likely to speed gains in worker pay.

“At that point, we think wage growth will be at or above 4 percent, posing awkward questions for the Fed if rates have remained at their current level,” he wrote in a note to clients.

The Fed raised interest rates four times last year but since December policymakers have stressed that they will be “patient” before hiking rates again — noting increasing signs of an economic slowdown worldwide and in the United States with few signs of accelerating inflation.

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