CPI 3% in January

Washington, DC, February 21, 2007--Consumer prices increased 0.3% in January, led by large increases in food, medical care and tobacco prices, the Labor Department reported Wednesday.

Core inflation, which ignores movements in food and energy prices, rose 0.3% in January, the biggest increase since June.

The greater-than-expected consumer price index could lessen the odds that the Federal Reserve would cut interest rates. The core CPI is up 2.7% in the past year, a notch higher than the 2.6% year-on-year rate in November and December.

The CPI is up 2.1% in the past 12 months.

Economists were looking for a 0.1% gain on the CPI and for a 0.2% gain on the core CPI.

In December, the CPI rose 0.5%, while the core CPI was up 0.1%.

Energy prices declined, falling 1.5% after a 4.2% gain in December. Gasoline and natural gas prices fell 3%.

Food prices jumped 0.7%, the largest gain in nearly two years. Stormy weather in California destroyed some crops, helping to send vegetable prices up 1.9% and fruit prices up 1.5%. Dairy prices rose 1.3%.

Shelter prices rose 0.3%. Owners' equivalent rent, which represents nearly a fourth of the CPI, increased 0.2%, the smallest increase in a year. Rents rose 0.4%. Hotel fares increased 1.1%.

Medical care prices rose 0.8%, the most in 16 years. Prescription drug prices jumped 1.1%, also the biggest increase in 16 years after falling for three months in a row. Physician services prices rose 1.2%, the most in 26 years.

Apparel prices rose 0.3%

Transportation prices fell 0.8% on the drop in fuels. Airfares rose 2.1%, the most in more than two years. New car prices were unchanged.

Tobacco prices rose 3.1%, the biggest increase since mid-2002.