US consumer prices flat in January for second month in a row

Thursday 21 February 2013 17.11
US consumer prices up 1.6% in the 12 months to the end of January
US consumer prices up 1.6% in the 12 months to the end of January

US consumer prices were flat last month, the latest sign that inflation is in check.

This could give the US Federal Reserve leeway to continue its efforts to stimulate growth.

The consumer price index has risen 1.6% in the 12 months ending in January, the Labour Department said - down from a 2.9% pace a year ago.

Excluding the volatile food and energy categories, core prices rose 0.3% in January, pushed up by higher costs for clothing, air fares and rents.

The price of clothes rose by the most in nearly 18 months, the Commerce Department noted.

Core prices have risen 1.9% in the past year, below the Fed's inflation target. The Fed is purchasing $85 billion in Treasury and mortgage bonds each month in an effort to keep interest rates low.

Last month, some Fed policymakers expressed concern the purchases could cause inflation or disrupt bond markets, according to minutes of the Fed's last meeting, which were released last night.

If the Fed feared that prices were rising too fast, it might have to raise interest rates. The Fed has kept the benchmark interest rate it controls at nearly zero, a record low, for more than four years.

Low inflation leaves consumers with more money to spend, which benefits the economy. Inflation slowed dramatically last year. Consumer prices rose only 1.7% in 2012, down from 3% in 2011.

Food prices were flat last month after rising for 10 months in a row. And energy costs, which include petrol, dropped 1.7%. Hotel prices rose by the most in a year and a half, pushing up core prices.

But relief at the pump ended in recent weeks, with prices rising steadily this month. Higher petrol prices will likely push up measures of inflation in February, though economists expect overall price increases to stay mild.

With job gains and economic growth steady but modest, many businesses are reluctant to raise prices for fear of losing customers which has helped keep inflation mild. Workers also are not able to demand higher wages when growth is weak, which limits their ability to spend more.