Washington, DC, Feb. 20--Consumer prices grew in January at the fastest pace in nearly a year.
The consumer-price index rose 0.5%, a level not seen since February 2003, the Labor Department reported Friday. But higher energy prices accounted for three-fourths of that increase. The core index, which excludes food and energy items, rose just 0.2%.
The knee-jerk reaction to the report was upbeat as economists had expected a 0.3% gain in the overall index, and a 0.1% increase in the core index, according to a survey by Dow Jones Newswires and CNBC.
But "if you spend five seconds looking at the report, you realize it's a whole bunch of special circumstances," said Anthony Karydakis, senior economist at Banc One Capital Markets in Chicago.
In annual terms, the core rate was steady at a 40-year low of 1.1% for the 12 months that ended in January, which suggests that there is little inflationary pressure on the economy.
Federal Reserve Chairman Alan Greenspan and other economists have said that inflation currently isn't a threat to the economy. That is one of the main reasons why Fed policy makers have kept short-term interest rates at a 45-year low of 1% and why they can afford to be "patient" in ordering any possible rate increases.
Some economists believe the Fed will start to nudge up short-term rates later this year. Others don't believe rates will move until 2005.
Even though Greenspan was optimistic that inflation would remain under control this year, he did say he would keep a close eye on rising energy prices, especially for natural gas and gasoline.
Energy prices, which account for 7% of the CPI, jumped 4.7%. That was the biggest
increase in 10 months and a sharp improvement from December's 0.3% gain. Gasoline prices shot up 8.1%, the largest increase since February 2003. Fuel-oil and natural-gas prices also rose sharply. But food prices, which account for 15% of the index, were unchanged for the first time in nine months.
Housing prices, which account for 40% of the index, rose at the fastest pace in 10 months, climbing 0.4%. Transportation prices also surged, rising 1.7% after three consecutive months of decline. That marked the fastest rate since February 2003. Prices of new motor vehicles, however, fell for a third consecutive month, dropping 0.1%. Medical-care prices moderated, rising 0.2% after a 0.5% gain in December.
