Inflation Took A Holiday During January Consumer Prices Increased A Scant 0.1 Percent

Consumer prices edged up a barely perceptible 0.1 percent in January, as the year began with little sign of inflation outside of energy costs.

The seasonally adjusted price gain was the smallest since last June, the Labor Department said Wednesday, and even better than the moderate 0.3 percent increase anticipated.

“It’s another wave of good news,” said economist Oscar Gonzalez of John Hancock Financial Services in Boston. “The economy is growing at its potential and employment is growing at a healthy pace and still inflation is nowhere to be seen.”

Energy costs, propelled by a record gain in natural gas prices, advanced 0.8 percent, the fifth consecutive monthly increase. But food prices fell 0.3 percent, the sharpest drop in 3 years. Outside of the volatile food and energy sectors, prices inched only 0.1 percent higher.

Last year, consumer prices rose 3.3 percent, the biggest increase in six years, pushed up by higher food and energy costs. But, excluding food and energy, the underlying inflation rate was 2.6 percent, the best in 31 years.

Economists are looking for overall inflation to ease to about 3 percent this year. That would make 1997 the seventh consecutive year with inflation at that level, a record unmatched since the 1960s.

It all adds up, they said, to the kind of stable inflation environment that should permit the Federal Reserve to avoid increasing short-term interest rates.

The January gain in energy prices was propelled by a 4.8 percent increase in natural gas costs, the steepest since the department began keeping track in 1952. Natural gas prices have increased 15.9 percent over 10 months.

Gasoline, up 0.7 percent in January, has risen 15.6 percent in 14 months and is now just 5.4 percent below its Gulf War peak in December 1990.

Food prices were led by a 5.3 percent fall in fresh fruit costs, the biggest drop in 4 years. However, analysts cautioned that a late-January freeze in Florida would push up fruit and vegetable prices when they’re measured this month.

Prices fell for beef, eggs, dairy products and cereal and baked goods and rose for chicken and pork.

Airline fares dropped 3.2 percent, the sharpest in 13 months, reflecting the expiration of the 10 percent federal airline ticket tax.

Medical care costs, once an area of strong inflation, rose just 0.2 percent in January and were up only 2.9 percent from a year earlier.

In a separate report, the Labor Department said inflation-adjusted average weekly earnings fell 2 percent in January, the biggest decline since August 1973. The drop came entirely from a decline in average hours worked and economists said that was related to winter storms that kept employees from work - not economic weakness.

Also Wednesday, a new survey showed that home builders are increasingly optimistic because mortgage interest rates have held steady for several months. The National Association of Home Builders index rose to 54 in February from 52 in January.

Tags: business

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