Stubborn US inflation complicates Fed's interest rate decision

The latest inflation data released on Tuesday promised to make the US Federal Reserve's interest rate decision next week even more fraught: Price increases showed signs of continued stubbornness, which would usually call for higher rates, but the data came as the turmoil sweeping the banking system has caused some economists to urge caution.

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Price increases did cool slightly on an annual basis, with the US consumer price index climbing 6 per cent over the year up to and including February, the Labour Department said on Tuesday.

That figure was down from 6.4 per cent in January, and matched the slowdown that economists expected. It seemed like an encouraging sign, but the underlying details of the report made the data more worrying.

Inflation looked far firmer beneath the surface. The price index climbed 0.5 per cent from the previous month after it was stripped of food and fuel prices - both of which bounce around a lot - offering a sense of underlying price pressures. That was up from 0.4 per cent in January and more than economists had forecast.

In fact, the increase was the fastest monthly pickup in the socalled core index since last September, which is not the kind of progress central bankers are hoping for a year into their fight against inflation. Many close Fed watchers anticipated that the cen-

tral bank, which meets next week, would raise interest rates by a quarter-point in the wake of the data - a gradual move that would try to balance risks posed by rapid price increases with the threat of further financial instability as tremors shoot through the banking system.