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Inflation starting to move in right direction

WASHINGTON - Prices around the U.S. rose in February, a sign that inflation may be stabilizing after remaining flat amid a dip in economic growth.

A modest rebound in gas costs and broad gains in other categories lifted consumer prices for the first time in four months, the Labor Department said Tuesday. The Consumer Price Index rose 0.2 percent in February, the biggest increase in eight months.

That rise follows a 0.7 percent drop the previous month. January's decline was the biggest in six years. Gas prices have plummeted since June, dramatically lowering inflation.

Although rising prices raise the cost of living for consumers, excessively weak inflation is an indication of weak economic demand. In turn, weak demand makes it harder for businesses to grow, add workers and give raises to existing employees.

"[T]he inflation story continues to be mostly about energy," said Chris Christopher Jr., U.S. economist with IHS, in a note. "Rising oil prices in February drove gasoline prices higher, while food costs came back up after taking a breather in January. Recently, consumer mood suffered a setback due to rising pump prices despite a well-received employment report. However, consumer confidence remains at relatively elevated levels."

Despite the uptick in inflation last month, consumer prices were unchanged in the 12 months ending in February, after slipping 0.1 percent in January from a year earlier. As a result, it is premature to say that inflation is turning higher, notes Jennifer Lee, senior economist with BMO Capital Markets.

Excluding gas, prices have been more stable. Outside food and energy, core prices also rose 0.2 percent last month. The cost of rents, clothes, new and used cars, and airfares all increased. Core prices have risen 1.7 percent in the past year.

Federal Reserve officials are keeping a close eye on inflation, and have pledged not to raise interest rates until they are "reasonably confident" that prices are heading toward the central bank's 2 percent target. Central bank members are also looking for wage growth, which has remained stuck around 2 percent, to pick up in the coming months.

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