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Energy costs drive up U.S. Jan consumer prices
WASHINGTON, Feb 20 (Reuters) - A sharp rise in energy costs pushed U.S. consumer prices up at their fastest pace in nearly a year last month, but underlying price pressures remained muted, a government report showed on Friday. The consumer price index, the most widely used gauge of U.S. inflation, climbed 0.5 percent in January after a 0.2 percent rise the month before, the Labor Department said. The so-called core CPI, which strips out volatile food and energy prices, gained just 0.2 percent. Wall Street economists had expected the overall CPI to rise 0.3 percent and the core index to tick up a mild 0.1 percent. The higher-than-expected readings pushed U.S. Treasury bond prices down a bit and the dollar higher. But the mild increase in core inflation held the 12-month change steady at the nearly 38-year low of 1.1 percent hit in December. Economists said the benign reading on core inflation meant the Federal Reserve still could bide its time as it mulled when it should push overnight interest rates up from their 1958 low of 1 percent. "The bond market took this report as a sign that core inflation may be bottoming and the Fed may still be in the tightening business later this year," said Cary Leahey, senior U.S. economist at Deutsche Bank Securities in New York. "But you probably need to see at least two out of the next three core CPI readings to be up 0.2 or more to say that you've bottomed" on inflation, he said. FUELING INFLATION Much of the increase in consumer prices in January was due to a big jump in energy costs, which were up 4.7 percent last month -- the biggest increase since March. Economists by and large had expected a big energy price gain. Gasoline prices rose 8.1 percent, the largest jump since last February, while fuel oil spiked 7.2 percent and natural gas prices increased 3.8 percent. The energy price increases were reflected in a sharp 1.7 percent increase in transportation costs, despite a drop in new car prices, and a 0.4 percent gain for housing. Food prices were unchanged in January, while apparel costs slid for the third straight month. Some economists said a sharp 0.6 percent rise in tobacco costs, their biggest gain since August, lay behind the higher-than-expected reading on core inflation and would likely prove transitory. Fed officials warned repeatedly last year of the risk of inflation moving undesirably low. But now that the economy has shown some muscle, they see the chance of inflation moving lower as nearly equal to the chance it will turn higher. Nonetheless, they have vowed to act patiently in raising overnight interest rates. "With inflation very low and substantial slack in the economy, the Federal Reserve can be patient in removing its current policy accommodation," Greenspan told Congress last week. While inflation risks have moved into better balance, the central bank's officials are still far from sounding an alarm over the potential for price increases. "We believe the effect of slack resources remains predominant at this time and we expect inflation to remain low this year," Chicago Federal Reserve Bank President Michael Moskow said on Thursday. But policy-makers clearly expect the next move on interest rates will be up. Moskow pointedly noted that overnight rates were below the rate of inflation, putting inflation-adjusted interest rates below zero, an unusually easy policy stance. "As the economy picks up and the output gap narrows, this real rate will have to rise to a level more compatible with sustainable trends in economic activity," he said. The output gap is a measure of untapped labor and productive capacity. Financial markets have been betting on a rate rise in August or September, while many economists expect the Fed to stay on hold into next year. Back to Original Article: News You Can Use
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