Consumer Prices Up 0.1% in January

U.S. consumer prices inched up 0.1% in January as energy prices tumbled for the second straight month, according to a report Wednesday that helped soothe recent anxiety about inflation.

Excluding volatile food and energy costs, the consumer price index rose 0.2% for a fourth straight month in January, the Labor Department said.

Wall Street economists had predicted a 0.2% rise in the CPI, both overall and excluding food and energy, but traders had braced for larger increases after a report Friday showed a big pickup in core producer prices.

The tame consumer price report helped allay concerns that the Federal Reserve might step up its so-far “measured” campaign of interest-rate rises to keep inflation in check.

“Inflation at the end of the day is headed higher, it’s just not going to happen that dramatically this year,” said Mark Vitner, an economist at Wachovia Securities in Charlotte, N.C. “This leaves the Fed exactly where they are.”

Over the last 12 months, the core CPI -- the reading excluding food and energy -- rose 2.3%, just a tick higher than for the 12 months through December.

Energy prices dropped 1.1% in January, with fuel oil off 5.2%, natural gas down 3% and gasoline off 2.1%.

However, energy prices have risen sharply in the last year and a recent renewed climb in crude oil prices threatens further increases.

Fed Chairman Alan Greenspan told Congress last week that the economy had kicked off the year in good shape “with inflation and inflation expectations well anchored.”

Merrill Lynch Chief North American Economist David Rosenberg said the CPI report “illustrates how hard it is to pass on costs from the producer to the retail sector, replete as it is with overcapacity and intense competitive pressures.”

Some economists, however, said price pressures were slowly building and said the Fed’s forecast last week of a 2005 increase of 1.5% to 1.75% in the agency’s favorite core inflation measure already was in jeopardy.

Food costs rose just 0.1% last month, as did prices for housing, recreation and education and communication. But apparel prices climbed 0.3%, a turnaround from a 0.4% December drop, and medical care prices continued their steep ascent with a 0.4% increase.

In addition, tobacco prices shot up 1.9%, which economists saw as a temporary aberration, while the cost of new vehicles advanced 0.7%. A steep 0.9% decline in airfares helped offset those increases.

Although the rise in inflation was muted last month, a slight drop in average weekly earnings meant workers lost ground. In the last 12 months, inflation-adjusted average weekly earnings fell 0.7%, the department said.