U.S. Inflation Rose 0.3% in January


The cost of living in the U.S. rose in January for the first time in six months as gasoline stopped sliding and retailers tried to push through start-of-year increases even as sales slumped.

The consumer price index rose 0.3 percent, as forecast, after dropping 0.8 percent in December, Labor Department figures showed today in Washington. Excluding food and fuel, the so-called core rate climbed 0.2 percent, more than anticipated, reflecting gains in autos, clothing, and medical care.

The price gains may not stick as more companies follow Wal- Mart Stores Inc. and Macy's Inc. in offering discounts as the economy sinks into what may turn out to be the worst recession in the postwar era. Some Federal Reserve policy makers have expressed concern that the deceleration in prices may give way to deflation, or a prolonged drop that hurts lenders and profits.

Consumer prices were unchanged over the last 12 months, the least since 1955. The core rate climbed 1.7 percent from January 2008, the smallest gain since March 2004.

Energy expenses rose 1.7 percent, led by a 6 percent increase in gasoline prices. The fuel's price fell 50 percent in the last three months of 2008.

The CPI is the broadest of the three monthly price gauges from Labor, because it includes goods and services. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.

Food prices, which account for about a fifth of the CPI, increased 0.1 percent.

New vehicle prices climbed 0.3 percent, the most in three years, and clothing costs also rose 0.3 percent. The cost of medical care increased 0.4 percent.

Rents which, make up almost 40 percent of the core CPI, also accelerated. A category designed to track rental prices climbed 0.3 percent.

Plummeting sales at General Motors Corp., Ford Motor Co. and Chrysler LLC may keep vehicle prices depressed.

Economists caution that disinflation could lead to outright deflation, which erodes profits and makes debts harder to repay. Still, others worry that in the longer term, the unprecedented fiscal stimulus and the Fed's policy of buying more assets and pumping money into the financial system will reignite inflation.

Fed officials introduced long-term inflation estimates, with most favoring a 2 percent rate, according to minutes of their January meeting released this week.


TradingEconomics.com, Bloomberg
2/20/2009 5:41:23 AM