The Fed's favorite inflation measure ticked even higher last month

New York(CNN Business) America's inflation problem didn't abate in February, as another key price measure rose to a 40-year high.

The Personal Consumption Expenditures price index rose 6.4% in February from the same period a year earlier. It was the fastest increase since January 1982, the Bureau of Economic Analysis reported Thursday.

Stripping out volatile food and energy costs, the index, which measures the inflation on consumer spending, rose 5.4% between February 2021 and 2022. That was the fastest increase since April 1983.

Both measures ticked higher, compared with the January numbers.

The PCE index is the Federal Reserve's preferred measure of inflation, and last month's reading is a far cry from the central bank's target of around 2%. Earlier this month, the Fed raised interest rates for the first time since 2018 in an effort to curtail rising prices.

But the nature of America's high inflation is changing.

Earlier on in the pandemic, higher prices were spurred on by high demand and supply chain troubles. But after Russia invaded Ukraine last month, global commodities markets have been thrown for a loop. Energy prices soared nearly 26% in February, according to the BEA. US oil prices climbed nearly 9% last month and have risen even higher in March despite a recent pull-back. Americans are feeling the effect at the pump.

"Prior to the return of inflation, the Fed would have less urgency to raise rates in the face of war or other threats to economic growth, but in this situation, with inflation likely to be exacerbated by disruptions due to war, the Fed needs to do the opposite of what they would normally do and that's to fight an even bigger threat of inflation," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, in emailed comments.

As for the inflation data, the economic spillover from the Ukraine conflict won't be confined to just February. Food prices, for example, rose 8% in February and are expected to increase throughout the year, as the conflict continues to affect the global food supply chain.

Economists hope that inflation will peak in the first quarter and then slowly come down during the remainder of the year. Whether February was this peak remains to be seen.

"The peak in the year-over-year inflation measures has proven illusive, but we suspect that a top is forming in March if the pull-back in energy prices is sustained," wrote Action Economics chief economist Mike Englund in a note to clients.

For February alone, prices rose 0.6%, or 0.4% excluding food and energy.

But even though inflation is on fire, Americans keep spending -- at least for now. Consumer spending increased 0.2%, or $34.9 billion, last month, according to Thursday's data.

Elevated incomes and savings are keeping consumers shopping. In February, American incomes rose by 0.5%, or $101.5 billion, while disposable incomes rose by 0.4%, or $76.1 billion. The personal savings rate stood at 6.3%, an increase from the start of the year.

However, economists worry that prices could climb so high that consumers will drastically change their spending behavior, postponing purchases or downshifting to cheaper alternatives. That would be bad news for US economic growth, some two-thirds of which is driven by consumer spending.