020258 Consumer Inflation Rises in January

Washington - Higher prices for gasoline, medical care, and some food items contributed to a mild rise in consumer inflation in January. But prices for clothing, cars, lodging and computers all fell, providing shoppers with some bargains.

The Consumer Price Index, a closely watched gauge of inflation, rose 0.2% last month after dipping 0.1% in December, the Labor Department reported Wednesday.

Excluding energy and food prices, which can swing widely from month to month, the “core” rate of inflation increased 0.2% in January, up slightly from a 0.1% advance the month before.

Even with the modest advances in both overall and core inflation in January, many economists believe consumer prices will remain steady in the months ahead because companies will continue to find it difficult to raise prices even as the economy tries to pull out of recession.

For the 12 months ending in January, consumer prices rose by just 1.1%, the smallest increase since the 12 months ending in December 1986.

“Inflation remains completely under control,” said Bill Cheney, chief economist at John Hancock Financial Services. “Goods and even services are cheap, and businesses are eager for sales at almost any price. Bargains abound.”

On Wall Street, bargain hunting gave the stock market a boost. The Dow Jones industrial average gained 196.03 points to close at 9,941.17.

To revive the economy, which slid into recession in March, the Federal Reserve slashed interest rates 11 times last year. The Fed could act so aggressively because inflation hasn't posed a risk to the economy.

Last month the Fed opted to leave interest rates unchanged, citing signs of a recovery as the reason. Many economists believe the Fed's rate cuts will pave the way for solid economic growth in the second half of this year.

But if the rebound turns out to be a lot stronger than expected and threatens to ignite inflation, the Fed might start raising interest rates later this year, economists said.

Higher gasoline prices were responsible for much of the increase in January's CPI, economists said. After falling in November and December, gasoline prices rose 2.7% in January, the biggest increase in four months. Even with the rise, gasoline prices remain 22.7% below levels seen a year ago.

Gasoline prices, while still considered moderate, were lifted by a firming of crude-oil prices last month, reflecting production cuts by oil-producing nations.

Natural gas prices rose 1.2% in January, the largest advance since May, but are still considerably lower than they were a year ago. Fuel oil prices, meanwhile, dropped 1.7% and electricity prices declined 1.2%, the biggest decrease in almost four years.

Food prices rose 0.3% in January, after being flat in December. Higher prices for vegetables, fruit and pork outweighed lower prices for beef, veal, poultry and dairy products.

Prices for medical care rose 0.5% in January, up from a 0.3% increase in December. January's advance was led by a 0.9% increase in prices for hospital and related services, the sharpest rise since December 1999.

Ken Mayland, president of ClearView Economics, said that while inflation probably won't be a worry for most of this year, the rise in medical care costs is troubling.

“With more people unemployed and uninsured and with profit-starved companies looking to cut and shift costs, we are on the cusp of another health care crisis,” he said.

On a more positive note for consumers, lower prices were reported for a number of goods and services. Clothing prices fell 0.7% in January. New-car prices were down 0.6%, the biggest decrease in nearly 15 years. Lodging prices dropped 0.7% and computer prices declined 2.8%.

Economists said the lower prices reflected heavy discounting and to some extent the impact of cheaper- priced imports, including foreign-made clothes and cars.

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