Monday, February 23, 2004
Purchasing power remains strong, economist says.
WASHINGTON (AP) -- Sharply higher costs for gasoline and other energy products pushed consumer prices in January up by 0.5 percent, the largest increase in nearly a year.
The increase in the Consumer Price Index, the government's most closely watched inflation barometer, came after prices rose by a mild 0.2 percent in December, the Labor Department reported Friday.
Even with the pickup, the nation's overall inflation picture -- from an economic perspective -- has largely been good.
Excluding energy and food prices, which tend to swing widely from month to month, the "core" rate of inflation increased by 0.2 percent in January, up from the 0.1 percent increase in December, but still suggesting that prices for many goods and services are fairly stable.
"People's purchasing power is still very strong," said Mark Zandi, chief economist at Economy.com. "Other than the surge in energy prices, inflation is tame. But that's the most visible price for many people. They are getting hit with higher prices at the pump and seeing their home-heating bills go and they don't know what economists are talking about that inflation is low," Zandi said.
Don't see inflation threat
Federal Reserve Chairman Alan Greenspan and other economists have said inflation is not currently a threat to the economy. That's one of the main reasons why Fed policy-makers have had leeway to leave short-term interest rates at a 45-year low of 1 percent and why they can afford to be patient in ordering any possible rate increases.
Some economists think the Fed will start to nudge up short-term rates later this year. Others don't believe rates will move until 2005.
Even though Greenspan was optimistic that inflation would remain under control this year, he did say he would keep a close eye on rising energy prices, especially for natural gas and gasoline.
In January, overall energy prices soared by 4.7 percent -- the largest increase since March 2003 -- and a huge pickup from the moderate 0.3 percent increase registered in December.
Gasoline prices jumped by 8.1 percent last month, natural gas prices were up 3.8 percent, and fuel-oil costs rose 7.2 percent. Cold weather, strong global demand and tight supplies are factors in rising energy costs, economists said.
Prices for college tuition and fees rose by 1 percent in January, a sore spot for consumers' pocketbooks and wallets. Costs for medical care went up 0.2 percent last month.
What fell
Rising prices for energy and the other items more than offset falling prices for other goods and services.
Clothing prices dropped by 0.3 percent, new-car prices dipped by 0.1 percent and prices for telephone services and for lodging each declined by 0.2 percent in January.
Food prices, meanwhile, were flat last month, an improvement from the 0.5 percent increase posted in December. Falling prices for beef and veal, vegetables, fruit and dairy products offset rising prices for pork and poultry in January. The 1.8 percent drop in beef and veal prices in the wake of the United States' first mad-cow case marked the biggest drop since May 1996.
Computer prices were flat in January.
The 0.5 percent rise in overall consumer prices in January marked the largest rise since February 2003 when consumer prices went up by the same amount. Economists were expecting a smaller, 0.3 percent rise in the overall CPI last month and a 0.1 percent increase in the core rate of inflation.