Low oil costs kept consumer prices unchanged in January, but so-called core inflation -- which excludes volatile energy and food prices -- posted its biggest monthly increase since 2011, the Labor Department said Friday.
The report indicates that once falling oil prices stabilize, inflation could be poised to move back toward the Federal Reserve's annual target of 2%. Such a move could lead to additional increases in the Fed's benchmark short-term interest rate.
Core consumer prices increased 0.3% in January, an improvement over 0.2% the previous month.
For the 12 months ended Jan. 31, core prices rose 2.2%. That was the biggest increase since June 2012.
"In one line: Core inflation is taking off," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Still, overall consumer prices were flat in January as lower energy costs offset increases for other goods and services.
Prices for apparel increased 0.6%, medical care 0.4% and new vehicles and food at restaurants 0.3% each.
But energy prices were down 2.8% in January, including a 4.8% decline in gas prices.
For the 12 months ended Jan. 31, overall prices increased 1.4%. That was up sharply from 0.7% for the 12 months ended Dec. 31.
Fed officials pondering a new interest rate increase have been worried about extremely low inflation.
Several members of the policymaking Federal Open Market Committee said last month that it "would be prudent" to wait for additional information about the strength of the U.S. economy and prospects for an increase in inflation before deciding on the next rate hike, according to minutes of their January meeting.
Fed Chairwoman Janet L. Yellen and other officials have said low inflation has been caused by the steep decline in oil prices in recent months. They expect inflation to move back toward the 2% target once oil prices stabilize.
The Fed uses a different inflation measure based on personal consumption expenditures that tends to run lower than the consumer price index.
Overall inflation was just 0.6% for the 12 months ended Dec. 31, the most recent figures for the Fed's preferred indicator. Core inflation was 1.4% for the same period.
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