Another close call for CPI-deflation

The Labor Department just reported on February consumer prices and, based on the official measure of inflation, it appears that we've averted a deflation death spiral for yet another month. Of course, housing and stocks continue to fall at an annual rate of 20 to 40 percent.
Overall consumer prices rose 0.4 percent last month after an increase of 0.3 percent in January. This follows three straight months of large declines during the fourth quarter of 2008 as energy prices and other commodity prices tumbled.

The core rate of inflation, a much derided and now largely inconsequential measure of inflation that excludes critical food and energy items, rose 0.2 percent in February matching the prior month's gain.

On a year-over-year basis, overall inflation is now up 0.2 percent on an unadjusted basis, following last month's reading of 0.0 percent. When seasonal adjustments are included, the annual inflation rate in February stands at +0.1 percent, following brief excursions into negative territory in December and January with readings of -0.1 percent and -0.2 percent, respectively.

As shown below, energy prices surged 3.3 percent last month, paced by an increase of 8.3 percent in the cost of gasoline. From year-ago levels, energy prices are down 18.5 percent.
Interestingly, food and beverage prices fell 0.1 percent in February, their first monthly decline in almost three years, however, on a year-over-year basis, food prices are up 4.7 percent.

Naturally, prices for medical care, recreation, and education along with most other domestic services continue to rise at rates well above the headline rate of inflation.