US consumer prices rose less than expected in January, while prices excluding food and energy fell for the first time since 1982, supporting the Federal Reserve's contention it would keep its benchmark interest rate low for an "extended period."
The Labor Department said today its seasonally adjusted Consumer Price Index rose 0.2 per cent last month, lifted by a spike in energy costs, after rising 0.2 per cent in December.
Analysts polled by Reuters had forecast consumer prices rising 0.3 per cent in January. Compared to January last year, prices rose 2.6 per cent, also below market expectations for a 2.8 per cent increase.
The report came day after the central bank raised the interest rate it charges banks for emergency loans by 25 basis points to 0.75 per cent, citing improvement in financial market conditions. It, however, maintained its pledge to keep overnight interbank lending rates at ultra low levels.
Quarterly forecasts released by the Fed on Wednesday showed policymakers expect inflation to remain muted through 2012.
US stock index futures pared losses on the report, while Treasury debt prices added gains. The U.S. dollar trimmed gains versus the yen.
A surprise surge in prices paid at the farm and factory gate last month, owing to higher gasoline costs, had fanned fears that inflation pressures could soon weigh on the economy, which is recovering from the most brutal recession in 70 years.
Consumer energy costs soared 2.8 pe rcent last month after rising 0.8 percent in December. Food prices climbed 0.2 per cent following a 0.1 per cent gain in December.
Stripping out volatile energy and food prices, the closely watched core measure of consumer inflation fell 0.1 per cent in January, the first decline since December 1982. Core prices rose 0.1 per cent the prior month.
Analysts had expected core prices to rise 0.1 per cent. Core prices were pulled down by declining costs for new vehicles, shelter and airline fares. High vacancy rates are keeping rentals depressed.
Compared to January last year, the core inflation rate rose 1.6 per cent after increasing 1.8 per cent in December.
Reuters