Consumer Price Index Jumps on Costlier Gasoline

Friday, 14 Jan 2011 08:38 AM

 

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Consumer prices rose last month as the cost of gas increased by the largest amount since June 2009. But outside of energy costs, there was little sign of widespread inflation.

The Labor Department said Friday the Consumer Price Index rose 0.5 percent in December, the largest increase in 18 months. About 80 percent of the increase was due to an 8.5 percent rise in the gasoline index, also the sharpest increase in 18 months. Food prices ticked up 0.1 percent in December.

High unemployment and a weak economy are keeping prices in check. Retailers and manufacturers are reluctant, for now, to pass on the rising costs of raw materials to consumers, for fear of scaring them away.

Last year, the consumer price index rose by only 1.5 percent, down from 2.7 percent in 2009.

Excluding the volatile food and energy categories, the so-called core index moved up 0.1 percent in December for the second straight month. In the past year, the core index rose by only 0.8 percent.

That's near a record low of 0.6 percent set earlier in 2010 and the smallest December-to-December increase in the history of the index, which dates to 1958.

Inflation could tick up this year as prices for commodities such as oil, grains and cotton have risen sharply in recent months. Grain prices hit a 2 1/2 year high earlier this week after the government said corn, wheat and soybean harvests would come in below previous estimates. Oil prices have risen due to strong demand in large, fast-growing developing countries.

Companies could be forced to pass on some of the higher raw material costs to consumers. So far, there is only limited evidence that that is occurring.

The Fed said in a survey released Wednesday that "competitive pressures" had limited the ability of companies to pass on higher prices.

Fed Chairman Ben Bernanke told Congress last week he expected inflation in the United States will "likely to be subdued for some time."

The Federal Reserve would like to see prices rise a bit faster than they are now. Its preferred range for the core consumer index is roughly 1.5 percent to 2 percent. Figures below that carry the threat of deflation, a widespread and prolonged downturn in prices, wages and home values.

Fears of deflation arose last summer, after consumer prices dipped for three straight months. But they have risen for six straight months since then.

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

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