Higher energy costs lift consumer prices in January

WASHINGTON -- The biggest jump in energy costs since the start of the Iraq war stung motorists and people heating their homes in January.

The Consumer Price Index, the government's most closely watched inflation gauge, rose by 0.5 percent, more than double December's 0.2 percent increase, the Labor Department reported Friday. Much of the January jump was blamed on sharply higher energy prices, reflecting a cold snap in parts of the country, strong global demand and tight supplies, economists said.

Excluding energy and food prices, which tend to swing widely from month to month, the core rate of inflation increased by a mild 0.2 percent in January, up from a 0.1 percent increase in December but suggesting that prices for many goods and services remain fairly stable.

On Wall Street, however, the inflation news disappointed investors. The Dow Jones industrials lost 45.70 points to close at 10,619.03

Federal Reserve chairman Alan Greenspan and other economists have said inflation poses no current threat to the economy.

That's a main reason 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 future rate increases.

Some economists believe the Fed will start to nudge up short-term rates late this year. Others don't believe rates will move until 2005.

For the 12 months ended in January, overall consumer prices were up by just 1.9 percent. Core prices, excluding energy and food, went up by an even smaller 1.1 percent, continuing the slowest pace in more than four decades.

"Today's low and stable inflation rates are far removed from those of the late 1960s to the early 1980s -- a period economic textbooks call 'The Great Inflation,"' William Poole, a Fed member who sits on the policy-making group that sets interest rates in the United States, said in a speech Friday.

Fed member Ben Bernanke, also part of that policy-making group, said the central bank has been successful over years in fostering price stability. Bernanke, also in a Friday speech, said he is "optimistic for the future because I am confident that monetary policy-makers will not forget the lessons of the 1970s," when inflation in some years ran into double digits.

Even though Greenspan was optimistic that inflation would remain under control this year, he promised to keep a close eye on rising energy prices, especially for natural gas.

In January, overall energy prices soared by 4.7 percent, the largest increase since March 2003 and a huge leap from the moderate 0.3 percent increase registered in December.

The jump in energy prices in January accounted for more than three-fourths of the overall increase in consumer prices for the month, the Labor Department said.

Gasoline prices jumped last month by 8.1 percent, natural gas prices were up 3.8 percent and fuel-oil costs rose 7.2 percent.

Prices for college tuition and fees rose by 1 percent in January, a sore spot for consumer pocketbooks and wallets. Costs for medical care went up 0.2 percent last month.

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 were flat last month, an improvement from a 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 aftermath of the United States' first mad cow case marked the biggest drop since May 1996.

Computer prices were flat in January.

------

On the Net:

CPI: http://www.bls.gov/