Consumer prices rose 0.2 percent in February, in line with expectations and likely alleviating concerns that inflation is about to accelerate, according to the Labor Department.
On a year-over-year basis, the consumer price index rose 2.2 percent, a bit ahead of the 2.1 percent increase reported in January.
Excluding volatile food and energy prices, the CPI was up 0.2 percent for the month and 1.8 percent annualized, unchanged from a month ago.
A decline in energy prices helped keep inflation in check while apparel contributed the most to gains, adding to gains posted in January. Energy prices overall gained just 0.1 percent, while apparel was up 1.5 percent. New car prices fell 0.5 percent, the biggest monthly decline since August 2009.
"While there is evidence of building inflationary pressures in certain components, the annual growth rates (especially for the core CPI) do not suggest a breakout in inflation yet," Ben Ayers, senior economist at Nationwide, said in a note.
The release comes a month after the consumer price index posted its biggest gain in four years of 0.5 percent. That jump helped fuel inflation scares and contributed to a quick correction in the stock market that saw major indexes fall more than 10 percent.
Markets reacted quickly to both months' data, but in opposite ways. In January, the jump in CPI prompted an aggressive selloff in stocks amid interest rate fears.
Tuesday's release of February numbers, however, pushed hopes higher, with a brief 100-point gain in the Dow industrials indicated when trading starts.
Investors are watching the inflation numbers closely for clues on how quickly the Federal Reserve will raise interest rates this year. Markets currently agree with Fed projections for three hikes, though a more aggressive inflation move could trigger additional increases.
March is a near certainty for a rate move, with traders assigning a 31 percent chance of a fourth increase in December, according to the CME.