Consumer prices were unchanged in January but core prices up 0.3%
Cheap gasoline kept a lid on consumer prices again in January, but a core measure of inflation rose at the sharpest pace in 4 1/2 years.
The report indicates persistently low inflation could be poised to accelerate, possibly prodding the Federal Reserve to hike its benchmark interest rate this year more than economists expect.
The consumer price index was unchanged last month, the Labor Department said Friday. Economists expected a 0.1% dip. The index was up 1.4% over the past year.
Excluding food and gasoline, which are volatile, so-called core inflation rose 0.3%, more than the 0.2% economists expected and the biggest gain since August 2011. The measure was up 2.2% the past 12 months.
Low oil prices and a strong dollar, which makes imports cheaper for consumers, have held down inflation. But prices of services such as healthcare and rent, have risen more sharply in recent months.
In January, gasoline prices fell 4.8%, matching its December decline. Regular unleaded averaged $1.72 Thursday, according to AAA, down from $1.88 a month ago. And food prices were flat.
But prices for other goods and services increased noticeably. Airline fares were up 1.2%; apparel, 0.6%; medical care services, 0.5%; rent, 0.3%; and new cars, 0.3%
The Federal Reserve is seeking a bigger pickup in consumer prices toward its annual 2% target before raising interest rates this year, as low inflation can reflect a weak economy that could be crimped further by higher borrowing costs. Fed policymakers expect the effects of cheap oil and a strong dollar to ease, and typically monitor core inflation more closely.
The Fed lifted its benchmark rate in December for the first time in nearly a decade amid an improving labor market.
Weak inflation, global economic troubles and the recent market sell-off have had many economists predicting the Fed would hold off on raising interest rates again next month. But Steven Ricchiuto, chief economist of Mizuho Securities, says Friday's report, "will feed into the Fed’s inflation concerns" and at least boost the very low odds of a rate increase at the Fed's March 15-16 meeting.