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Consumer prices rose the most in 10 months in February as the cost of gasoline spiked, but there was little sign that underlying inflation pressures were building up.

Surging gasoline prices put a small dent in consumer confidence early this month, other data showed on Friday. Still, Americans do not believe the sharp run up in prices will last.

The Labor Department said the Consumer Price Index rose 0.4 percent in February after advancing 0.2 percent in January. Gasoline accounted for more than 80 percent of the rise.

Stripping out volatile food and energy costs, the so-called core CPI edged up just 0.1 percent.

“Consumer purchasing power, at least for the next few months, is going to remain pressured by rising gasoline prices,” said Sam Bullard, a senior economist at Well Fargo Securities in Charlotte, North Carolina. However, he said a trend toward lower inflation was still in place.

Consumer prices rose 2.9 percent last month from a year-ago, unchanged from January but down from a peak of 3.9 percent in September. The core index was up 2.2 percent over the 12 months through February, down from 2.3 percent in January.

The Federal Reserve said on Tuesday the recent spike in energy costs would likely lift inflation only temporarily. Over a longer horizon, it said inflation was poised to run at or below its 2 percent target.

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Graphic - consumer prices: link.reuters.com/cam27s

Graphic - core CPI: link.reuters.com/mam27s

Graphic - industrial output: link.reuters.com/fem27s

Graphic - consumer sentiment: link.reuters.com/xem27s

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GASOLINE HURTS SENTIMENT

Gasoline prices have increased 53 cents since the start of the year to an average of $3.88 a gallon in the week to Monday.

That helped pull the Thomson Reuters/University of Michigan index on consumer sentiment down to 74.3 early this month from 75.3 in February.

Consumer expectations for inflation one year ahead jumped to 4 percent from 3.3 percent, but the five-year reading rose only slightly to 3 percent and the survey’s director said Americans do not expect the steep climb in gasoline costs to last.

“Overall, the data indicate that $4 gasoline has lost its shock value, although the drain on discretionary income will still affect spending, mostly among lower-income households,” survey director Richard Curtin said.

Inflation expectations among investors, as signaled by spreads in the bond market, have also been on the rise, supported by a stream of relatively upbeat economic data. However, they fell back a bit after the CPI report.

Tensions over Iran’s nuclear program have kept alive fears of oil supply disruptions and have pushed prices higher.

With gasoline weighing on the economy’s recovery, President Barack Obama, who faces re-election in November, has been considering tapping strategic oil stocks to ease the price pressure.

Other data on Friday showed the economy continues to expand moderately. Production at the nation’s mines, factories and utilities held steady last month after a 0.4 percent gain in January, the Fed said.

Manufacturing output rose 0.3 percent, even as automakers cut production by 1.1 percent after two big monthly gains. Carmakers had raised production to meet pent up demand for popular models in short supply.

“While higher energy prices and the euro zone recession are headwinds for manufacturers, an expanding U.S. economy, propelled by strengthening job market gains, should keep factory activity strong this year,” said Paul Edelstein, an economist at IHS Global Insight in Lexington, Massachusetts.

INFLATION OUT PACES WAGES

Stocks on Wall Street were little changed after hefty gains this week. Prices for U.S. Treasury debt fell, while the dollar weakened broadly.

The CPI report showed gasoline prices soared 6 percent last month, the largest increase since December 2010. They had risen 0.9 percent in January. While the strengthening jobs market is providing some cushion against rising gas prices at the pump, salaries are not keeping up.

Average weekly earnings, adjusted for inflation, fell 0.3 percent last month after slipping 0.1 percent in January, the Labor Department said. Compared with February last year, weekly earnings were down 0.4 percent.

But there was some price relief for households. Food costs held steady in February, marking the first time in 1-1/2 years they had not risen, and apparel prices dropped by the most since July 2006.

There were also declines in the prices of tobacco, airline tickets and used cars and trucks. Recreation costs also fell. But new motor vehicle prices recorded their first increase in nine months, reflecting rising domestic demand for autos.

A measure of the amount homeowners would pay to rent or would earn from renting their property - one of the largest single components of the CPI - rose at the slowest pace since April. Rents have risen as Americans have moved away from ownership in the face of persistent declines in house prices.

“The downward trajectory for consumer price inflation remains largely intact,” said Millan Mulraine, a senior macro strategist at TD Securities in New York.

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U.K. jobless claims rose more than economists forecast in February and a broader measure of unemployment remained at the highest rate in 16 years, underscoring the weakness of the labor market even as the economy shows some signs of recovery.

Unemployment-benefit claims climbed by 7,200 from January to 1.612 million, a 12th straight monthly increase, the Office for National Statistics said today in London. The median forecast of 28 economists in a Bloomberg News Survey was for a gain of 5,000. Unemployment (UKUEILOR) measured by International Labour Organization methods held at 8.4 percent in the three months through January, the highest since 1995.

The data may fuel arguments from opposition politicians that Prime Minister David Cameron is cutting government spending too fast to tackle the deficit and comes after the economy contracted in the fourth quarter. While some indicators signal the economy returned to growth this quarter, consumer confidence remains weak on concern that job cuts may continue.

The

It affects everything from mortgages to credit cards to student loans, and now some of the world’s biggest banks are at the center of a criminal investigation into whether they manipulated it for their own benefit.

The London Interbank Offered Rate, or Libor, is a measure of the cost of borrowing between banks that serves as a benchmark for over $350 trillion worth of financial products worldwide.

Higher Libor rates translate into higher borrowing costs for businesses and consumers, while lower rates could make lenders reluctant to lend since they can’t charge as much in interest. In addition to consumer loans, certain bonds and interest rate swaps also use it as a benchmark.

With all the different loans and investments tied to Libor, there are serious consequences if the process is tampered with.

"If you move it even a little bit, it can cause massive redistribution of resources because it’s so extensively used," said Rosa Abrantes-Metz, a professor at New York University’s Stern School of Business and a former economist with the Federal Trade Commission.

Last week, the Justice Department said in a letter to a federal judge that it was conducting a criminal investigation of alleged Libor manipulation. Officials in Switzerland, Canada and the United Kingdom are also looking into the issue, according to disclosures in several banks’ public filings.

In addition, a number of banks, including Bank of America (, Fortune 500), Citigroup (, Fortune 500), HSBC, JPMorgan (, Fortune 500) and Credit Suisse (), are defendants in a U.S. civil case brought by investors — ranging from mutual funds to individual traders to the city of Baltimore — who say they lost profits due to Libor distortion as far back as 2006.

Law enforcement officials and the banks targeted in the suit either declined to comment or did not respond to requests for comment.

How Libor works: Libor rates are set each business day through a process overseen by the British Bankers’ Association.

Between seven and 18 large banks are asked what interest rate they would have to pay to borrow money for a certain period of time and in a certain currency. In all, the process generates rates for 10 currencies across 15 different time periods, ranging from one day to one year.

The responses are collected by Thomson Reuters, which removes a certain percentage of the highest and lowest figures before calculating the averages and creating the Libor quotes.

BofA to slash mortgage balances

Banks trying to appear stronger and more creditworthy may have been tempted to submit lower numbers, particularly during the financial crisis.

In addition, if the banks coordinated their submissions, they could adjust trading positions tied to Libor in order to profit from their advanced knowledge of its movements.

"The banks involved in this were largely trusted by the public to be setting these rates in a fair way — it was supposed to be a transparent measure of the cost of borrowing," said Arun Subramanian, a lawyer representing plaintiffs involved in the civil litigation. "To the extent that the banks were colluding to manipulate these rates, everyone was harmed and the public trust was violated."

Key Wall Street reform rule under fire

No banks have been formally accused of wrongdoing in the United States.

However, Japanese regulators temporarily suspended some transactions by UBS () and Citi in December after it was revealed that traders at both banks attempted to influence yen Libor rates and the related Tokyo Interbank Offered Rate, or Tibor.

UBS also recently revealed in public documents that it was providing information to U.S. and Swiss officials investigating possible Libor manipulation in exchange for leniency and conditional immunity, depending on the jurisdiction.

There’s no telling how long all the various probes will take to resolve, but if the allegations are proven, liabilities could be in the billions, said Jonathan Macey, a professor at Yale Law School. There’s also the possibility of criminal charges should conspiracy among traders be established, as well as the potential for more lawsuits from private plaintiffs.

"It’s a very serious issue when you’re talking about banks manipulating these rates across the globe," Subramanian said. "I think the liability for the banks is going to be staggering." 

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India, the world

About 100 students protested Friday ahead of a speech at Cambridge University by Dominique Strauss-Kahn, the former International Monetary Fund chief whose career collapsed after he was charged with sexual assault.

The 62-year-old French politician, often called DSK, was scheduled to speak on Europe’s financial crisis at the university’s debating society later Friday despite calls for the event to be canceled. The protesters said the university should not give a platform to a man with such a troubling attitude toward women.

“It’s got nothing to do with freedom of speech,” said student Francesca Williams, 21. “They’re inviting a man who hates women. I don’t think DSK should be given the privilege of speaking in front of a private audience.”

Earlier, police arrested a man and a woman, both in their early 20s, on suspicion of vandalizing The Cambridge Union Society building. The Cambridge News website displayed photos showing its walls defaced with messages including “DSK GO AWAY” and “WOMEN DESERVE BETTER.”

Strauss-Kahn resigned as head of the IMF after allegations last May that he sexually assaulted New York hotel maid Nafissatou Diallo no fax payday advances. Prosecutors later dropped criminal charges against him, but Diallo has brought a civil case against him.

In an unrelated case, he was questioned by police in Lille, France, last month about a suspected hotel prostitution ring.

Diallo’s lawyer, Douglas Wigdor, spoke to about 100 Cambridge students and journalists on her behalf at a rival event earlier Friday. Letting Strauss-Kahn speak at the prestigious university was “giving him a platform to use Cambridge University to help his publicity campaign,” Wigdor said.

A statement posted Friday on the debating union’s website states that the invitation was made well before Strauss-Kahn’s controversial departure from the IMF. His experience in French politics mean that he was “exceptionally well qualified” to speak on the financial crisis and the French presidential election, it said.

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Six world powers are urging Iran to answer questions meant to defuse concerns it seeks nuclear weapons, while stressing that diplomacy is the way forward.

The six also are asking Iran to open its Parchin military site to International Atomic Energy Agency perusal, amid signs that Tehran might be cleaning it of evidence of nuclear-arms related experiments.

The six _ the United States, Britain, France, Russia, China and Germany _ issued a joint statement Thursday at a 35-nation IAEA board meeting.

Concerns about Parchin are high. Diplomats who spoke to The Associated Press on Wednesday said satellite footage from the area appeared to show trucks and earth-moving vehicles at the miltiary facility, indicating an attempted cleanup of radioactive traces.

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China set a 2012 target for inflation that

Singapore Telecommunications Ltd. said Monday it plans to acquire mobile advertising company Amobee Inc. for $321 million.

SingTel, Southeast Asia’s largest telecom by revenue, plans to complete the purchase by June and leave the management of Redwood City, California-based Amobee in place, the company said in a statement.

SingTel said it seeks to move beyond mobile advertising through banner ads to include targeted deals and coupons and loyalty rewards programs for customers.

“We’re very serious about becoming a major player in this mobile marketing ecosystem,” said Allen Lew, chief executive of SingTel’s Singapore operations. “It’s an important first step for us because we believe this investment sets us up to capture the huge opportunity in mobile marketing.”

SingTel also announced Monday that it will reorganize itself into groups focusing on consumers, digital life and information and communications technology. SingTel owns Australia’s Optus and has large stakes in mobile operators in India, Indonesia, Thailand, Pakistan, the Philippines and Bangladesh. It has 434 million subscribers worldwide.

SingTel said last month its net profit in the fourth quarter fell 9.6 percent to 902 million Singapore dollars ($720 million).

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He predicted the tech-stock collapse. He foresaw the housing bust.

So naturally, everyone wants to know what Robert Shiller thinks of today’s stock prices, now perched at a four-year high. Or about the direction of home prices.

Keep your hopes in check. Shiller is disinclined these days to offer specific predictions about the direction of stocks, home prices or any other asset whose prices can surge or plunge before we can fully grasp what’s going on.

In his 2000 book “Irrational Exuberance,” Shiller warned of a stock-market bubble. Five years later, Shiller detected a bubble in home prices and argued that it posed a grave threat.

Shiller, a Yale economist, is co-creator of the widely followed Standard & Poor’s/Case-Shiller home price index. He has been widely ranked among the most influential economists in the world.

Despite his accurate past warnings, Shiller, 65, is generally skeptical of his profession’s ability to foresee shifts in the economy. Much of his recent work focuses on behavioral economics _ how psychology drives financial decision-making.

He believes home or stock prices flow from the confidence of consumers or investors. Confidence, in turn, reflects the story lines people invent to frame their memories of events _ from stock crashes to housing booms. Ultimately, he says, our financial decisions reflect our emotions and memories more than the state of the economy.

Shiller thinks home prices nationally could fall further. But he isn’t certain.

He doesn’t think the rising stock market has formed a bubble. Shiller doesn’t detect the kind of investor overconfidence that he associates with dangerously high stock prices.

In an interview with The Associated Press, Shiller spoke about the housing market, the stock market, the economy and human behavior. Excerpts appear below, edited for length and clarity.

Q: A lot of housing market experts think home prices have bottomed. You’ve been more bearish.

A. It’s not so much that I’m forecasting falling home prices as that I question whether anyone is able to forecast them right now. They won’t fall forever, but they can fall for a long time. I don’t know where home prices will be in 10 or 20 years.

Q: If prices do fall further, does it follow that many homeowners will feel less wealthy, and they’ll reduce spending and that will slow the economy?

A. Yes, we find that the “wealth effect” is stronger for housing than it is for the stock market. Many stocks are held in retirement portfolios, so people are not as likely to respond to a decline in value there as they would if it were something more immediate. In recent years, the home-equity loan has become very important as a way of sustaining consumption. Now that home prices have fallen, those loans are not so available. It seems pretty obvious that it’s going to affect consumption.

Q: What trends would you need to see for a strengthening of prices and then a sustained rise in home prices?

A: One thing that has been encouraging: The National Association of Home Builders’ housing market index has been shooting up. Builders are seeing signs of increasing demand. But it remains at a low level. So it’s ambiguous evidence. But that might be taken as a sign that the market is improving.

Q: If you were a national housing czar with unilateral authority to do whatever you deemed necessary to help the markets and restore faith, what steps would you take?

A: This crisis was caused substantially by a failure to manage real estate risk properly. And so we should be thinking like financiers about that risk, and how it should be managed. The mortgage institution we have is traditional. There’s no reason why we shouldn’t rethink it completely. The Dodd-Frank Act called for a study of shared appreciation mortgages. Those are mortgages where the risk of loss and gain on the house is shared with the lender. So if home prices go down, it’s not all on the shoulders of the homeowners.

Q: Do you see more rentals and apartments over the next decade? Do you think single-family homeownership will continue on maybe a slow but steady decline?

A: After the Great Stock Market Crash of 1929, people soured on stocks as investments. And I could see that happening with housing. The assumptions people have been making that buying a house is the American dream and that that’s what you have to do _ that kind of assumption is not ringing so true anymore.

Q: Will the foreclosure settlement for about $25 billion between states and the five biggest mortgage lenders strengthen the housing market?

A: The problem is that the decline in the housing market dwarfs this agreement. The total decline of the housing market has been in the trillions, and negative equity in housing, by one estimate, was about $700 billion. So this is too small to be very effective. It all helps, I suppose, but it’s not big.

Q: Do you think there’s a bubble forming in the U.S. stock market or in any other asset?

A: It doesn’t seem to me that we’re in a bubble situation as we were, say, in the 1990s. In the 1990s, there was just a general mood that we’re entering a new millennium, with Internet technology and advanced technology and America soaring. It was a bubble all over the world, really. I don’t know that we’re in that state of confidence now.

Q: Do you think any asset bubbles are forming in China?

A: China had what looks like a bubble, but the government has taken steps against it. This is another reason not to expect bubbles so much. The stock market bubble of the 1990s and the housing bubble of the 2000s were still at a time when central bankers and government authorities believed much more in free-market efficiency than they do now. The authorities are now thinking that it’s their responsibility to choke off bubbles.

Q: If you had to put all your money for the next decade in either stocks or super-safe, inflation-protected securities from the U.S. Treasury (TIPS), what would you do?

A: Stocks. They’re highly priced, and they’re risky, but they’ve had a good historic record. And last time I looked, inflation index bonds have a negative real yield.

Q: Is there any recent good book on consumer psychology or a non-econ subject that you’ve read?

A: Well, I like Danny Kahneman’s new book, “Thinking, Fast and Slow.” This reflects a psychological literature that the human mind is designed to build memories around narratives, especially human interest stories. Our mind stores memories as sequences of events with an ending. The story of the Great Depression is a story that’s in our memories. Another story is the patriotic one of the greatness of our country that may resonate more at some times than at others. And when it does resonate, it encourages people to be spending and investing in an optimistic way.

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Europe’s leaders are traveling to Brussels hoping to chart the continent’s way back to growth.

The two-day summit of EU leaders is for once taking place amid relative calm in financial markets, after the European Central Bank’s latest massive injection of cash into fragile banks.

Investors have also been relieved that Greece looks likely to avoid imminent bankruptcy.

Finance ministers from the eurozone are also in the Belgian capital on Thursday to check on Athens’ progress on reforms and cuts it has to implement before receiving a euro130 billion ($173 billion) bailout.

Heads of state and government, meanwhile, will scrutinize each others efforts to boost growth and limit deficits amid a shrinking economy and high unemployment.

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