Consumer Prices Unchanged for Second Month in Row

Thursday, 21 Feb 2013 08:34 AM

 

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U.S. consumer prices were flat last month, the latest sign inflation is in check. That could give the Federal Reserve leeway to continue its efforts to stimulate growth.

The consumer price index has risen 1.6 percent in the 12 months ending in January, the Labor Department said Thursday. That's down from a 2.9 percent pace a year ago.

Excluding the volatile food and energy categories, core prices rose 0.3 percent in January, pushed up by higher costs for clothing, air fares and rents. The price of clothes rose by the most in nearly 18 months.

Video: Economist Predicts 'Unthinkable' for 2013 

Core prices have risen 1.9 percent in the past year, below the Fed's inflation target.

The Fed is purchasing $85 billion in Treasurys and mortgage bonds each month in an effort to keep interest rates low. Last month, some Fed policymakers expressed concern the purchases could cause inflation or disrupt bond markets, according to minutes of the Fed's Jan. 29-30 meeting released Wednesday.

But private economists see little sign that prices increases are accelerating.

"As long as inflation readings remain relatively constrained and inflation expectations do not get out of control, the (Fed) has plenty of runway to continue its program," Dan Greenhaus, chief global strategist at brokerage BTIG, said in a note to clients.

If the Fed feared that prices were rising too fast, it might have to raise interest rates. The Fed has kept the benchmark interest rate it controls at nearly zero, a record low, for more than four years.

Low inflation leaves consumers with more money to spend, which benefits the economy.

Inflation slowed dramatically last year. Consumer prices rose only 1.7 percent in 2012, down from 3 percent in 2011.

Food prices were flat last month after rising for 10 straight months. And energy costs, which include gasoline, dropped 1.7 percent. Hotel prices rose by the most in a year and a half, pushing up core prices.

The relief at the pump ended in recent weeks, with prices rising steadily this month. Higher gas prices will likely push up measures of inflation in February, though economists expect overall price increases to stay mild.

Gas prices averaged $3.77 a gallon nationwide on Wednesday, according to AAA. That's up 46 cents from just a month ago.

With job gains and economic growth steady but modest, many businesses are reluctant to raise prices for fear of losing customers. That's helped keep inflation mild. Workers also aren't able to demand higher wages when growth is weak. That limits their ability to spend more.

Video: Economist Predicts 'Unthinkable' for 2013 

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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