Consumer Prices Jump 0.7% but Core Inflation Still Tame

Consumer prices galloped ahead in January at the fastest pace in four months, especially pinching the wallets of motorists and other energy users. But excluding energy and food, inflation was moderate.

The latest picture of the nation’s pricing climate, released by the Labor Department on Wednesday, reinforced expectations that Federal Reserve Chairman Ben S. Bernanke and his colleagues would boost interest rates in the months ahead to blunt inflation.

The government’s most closely watched inflation barometer, the consumer price index, advanced 0.7%, compared with a 0.1% dip in December. The seesaw pattern mostly reflects gyrating energy prices.

A separate report showed that workers’ average weekly earnings, adjusted for inflation, dropped 0.4% in January from a year ago. For most workers last year, paychecks didn’t keep pace with inflation.

The main factors behind January’s higher CPI reading were rising energy and food prices.

Excluding energy and food, “core” prices rose a modest 0.2% in January, after a 0.1% increase in December. More expensive clothing and new cars were blamed for the slight pickup in core inflation.

Fed officials are especially interested in the core inflation readings. By excluding energy and food prices, which can swing widely from month to month, the gauge gives economists a good sense of larger price trends. Fed officials don’t want to see elevated energy prices affecting the retail prices of many other goods and services, which would lead to a broader bout of inflation spreading through the economy.

Core inflation may not appear overly worrisome for now, but it is “generating some angst within the Fed,” said Sherry Cooper, chief economist at BMO Nesbitt Burns. “The risks remain skewed to a mild up-creep in core inflation during the months ahead,” and that will keep the Fed on a rate-raising path, she predicted.

January’s 0.7% jump in overall consumer prices was the biggest since a 1.2% leap in September, when the Gulf Coast hurricanes propelled gasoline prices past $3 a gallon and other energy prices skyward.

Energy prices rose 5% in January, the most since an 11.8% surge in September. Gasoline prices last month went up 6.4%, also the biggest increase since September. Electricity prices soared 5.5%, the largest monthly rise on record. That huge gain reflected efforts by utilities to pass on their higher fuel costs to consumers. Natural gas prices rose 1.7%, the most since October.

Food prices, meanwhile, increased 0.5% in January, the most in nine months. Rising prices for fruit, vegetables, dairy products and beef and veal swamped the falling prices of poultry and pork.