US CONSUMER prices edged higher in January, while prices excluding food and energy fell for the first time in 27 years, supporting the US Federal Reserve’s contention that it would keep its benchmark interest rate low for an “extended period”.

The tame inflation data yesterday helped calm fears that the Fed’s decision to raise the discount rate it charges on emergency loans to banks, announced on Thursday, presaged a broader tightening of monetary policy.

“The Federal Reserve will be in a position to keep rates exceptionally low for an extended period of time. We expect no official change in the federal funds rate until late in the third quarter,” said Brian Bethune, an economist at IHS Global Insight.

The US labour department said the consumer price index rose 0.2 per cent last month, lifted by a spike in energy costs, after increasing 0.2 per cent in December. That was below market expectations for a 0.3 per cent gain. Stripping out volatile energy and food prices, the closely watched core measure of inflation fell 0.1 per cent, the first decline since December 1982. Analysts had expected a 0.1 per cent rise. The costs of new vehicles, shelter and apparel fell, as did airline fares and recreation prices.

The US central bank raised the discount rate by a quarter-percentage point to 0.75 per cent, citing improved financial market conditions. However, it maintained its pledge to keep overnight interbank lending rates at ultra-low levels.

New York Fed president William Dudley, speaking yesterday, confirmed the Fed’s vow on low benchmark rates was “still very much in place”.

US stock indices rose as the benign inflation report offset investors’ negative perception of the discount rate hike. Treasury debt prices were little changed, while the US dollar touched an eight-month high against a basket of currencies. – (Reuters)