Thursday, February 17, 2011

Consumer prices show inflation turning up

Consumer prices show inflation turning up

(Reuters) - U.S. core consumer prices rose at the quickest pace in 15 months in January, suggesting a long period of slowing inflation had run its course.

The core Consumer Price Index, which excludes volatile food and energy costs, increased 0.2 percent last month after a 0.1 percent rise in December, the Labor Department said on Thursday. It was the largest increase since October 2009.

Economists largely agreed inflation had bottomed but they said the turnaround in prices was unlikely to be so swift as to trouble policymakers at the Federal Reserve, who are still pumping money into the economy.

"Inflation has bottomed out, that's actually what the Fed would like to see happen and these numbers are by no means alarming," said Stuart Hoffman, chief economist at PNC Financial in Pittsburgh.

"The question is, if inflation is coming back, how fast and how far? This data tells me it's not coming back quickly."

The increase in core prices, which was a touch above economists' expectations for a 0.1 percent gain, was driven by a 1 percent surge in the cost of apparel and a 2.2 percent jump in airline fares. Shelter costs, which account for 40 percent of core CPI, rose for a fourth straight month.

The outlook for soft inflation was supported by a rise in applications for unemployment benefits last week, which suggested the labor market recovery would remain gradual, restricting wage growth. The Labor Department said hourly earnings, adjusted for inflation, fell 0.1 percent in January, a third straight monthly decline.

Other data on Thursday, however, showed the economic recovery continues to strengthen.

A measure of factory activity in the U.S. Mid-Atlantic region rose in February to its highest level since January 2004, with an employment subindex reaching its highest point since April 1973. A separate gauge of the country's economic health rose marginally in January.


Investors perceived the inflation report as tame. The data, coupled with rising tensions in the Middle East that led investors to seek safe haven, pushed up prices for U.S. government debt. U.S. stocks fell and the dollar was weak.

Overall consumer prices rose 0.4 percent after increasing by the same margin in December, with food and energy accounting for more than two-thirds of the increase. Economists had expected the headline CPI to rise 0.3 percent last month.

The modest increase in U.S. consumer prices stands in stark contrast to other economies, where surging commodity costs have put central banks on inflation alert.

In China, authorities are considering a range of measures to tame rising prices. Food inflation has also been cited as a factor in the political unrest in the Middle East.

Officials from the Group of 20 leading economies were expected to tackle the subject at a weekend meeting in Paris, although it was unclear what, if any, steps might be taken.