U.S. consumer prices were unexpectedly flat in February, a government report showed, clearing the way for a large interest rate reduction by the Federal Reserve next week.

The consumer price index was unchanged in February both overall and when volatile food and energy prices were excluded, the U.S. Labour Department said today. Core inflation hadn’t flattened on a monthly basis since November 2006.

Wall Street economists had expected a sharper 0.2% rise in both the headline and core indexes last month.

Unrounded, the CPI rose 0.026% last month. The core CPI advanced 0.040% unrounded.

Still, consumer prices rose a sharp 4% on a year-over-year basis, though that was down slightly from January. The core CPI grew a more modest 2.3% compared to February 2007. Over the past three months, core inflation has also risen at a 2.3% annual rate.

That’s above the top end of the Fed’s presumed comfort zone of around 1.5% to 2%. The Fed’s preferred gauge, the core price index for personal consumption expenditures, is closer to that range at 2.2% annual growth through January, and the CPI data suggest that annual rate may come down as well when February PCE data are released.