U.S. inflation rose modestly in February, with the core consumer price index (CPI) 1.8 percent higher than in the same month last year, signaling the Federal Reserve will raise interest rates gradually.

The CPI increased 0.2 percent last month on a seasonally adjusted basis after jumping 0.5 percent in January, the Department of Labor reported Tuesday. Over the last 12 months, the index rose 2.2 percent, up from 2.1 percent in January.

Core inflation, which excludes volatile food and energy prices, gained 0.2 percent last month, and rose 1.8 percent over the past year. Both figures are in line with market expectations.

With the tightening labor market, tax cut stimulus and increased government spending, the inflation index has been heading toward the Fed's 2-percent target.

The U.S. central bank raised interest rates three times in 2017 and forecast three increases in 2018.