A key measure of U.S. inflation showed its largest increase in 18 months, as the Consumer Price Index (CPI) rose 0.5% in February.  The rise came in slightly above market expectations of 0.4%, and was the highest rate since June 2009 .

The core CPI, which excludes food and energy prices, rose 0.2% in February, also just above the 0.1% expected by economists.

Housing prices, which make up approximately 40% of the core CPI, increased for the fifth straight month, by 0.1%

The rising rate of U.S. inflation stands in stark contrast to rhetoric from the Federal Reserve, which has repeatedly stated over the past year that risks of inflation and inflationary expectations remain muted.  In the latest FOMC statement, the central bank said it expected the recent rise in commodity prices to be temporary, although it would closely monitor inflation and inflation expectations.

If the Fed does begin to view rising inflation as a sustainable trend, it may be forced to tighten monetary policy, or at least decide to not pursue further quantitative easing.  Such a scenario would likely have a negative effect on asset prices, particularly gold.

However, thus far the Fed has remained steadfast in its view that deflation, rather than inflation, is a more significant threat to the economy.  In this situation, the yellow metal is likely to continue to benefit.

Commenting on the CPI report and the Fed, Tom Porcelli, U.S. economist at RBC Capital Markets, stated that ”I don’t think it means anything for the Fed. They’re going to probably wind up saying some of this is transitory. It won’t be sustained.”