Core Consumer Prices Ease For First Time Since 1982

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US consumer prices rose less than forecast in January, while prices excluding volatile food and energy dropped for the first time in nearly three decades, easing concerns about inflationary pressures.

The Labor Department's seasonally adjusted Consumer Price Index rose 0.2 percent last month, matching December's rise, while analysts were expecting prices to increase by 0.3 percent.

Friday's tame inflation figures suggest the Federal Reserve has a free hand in maintaining interest rates near zero for an extended period, as they have assured in recent months.

The dollar was able to sustain most of its strong recent gains versus the euro following the release of the CPI figures, staying within a cent of its 9-month high of $1.3444 reached last night.

Prices rose 2.6 percent in January compared to the same month a year ago, below expectations for a 2.8 percent increase.

"Both headline and core rate should decline towards 1% during 2010 as the slack in the economy and the after effects of the housing bust dampen inflationary pressure," said Commerzbank analyst Christoph Balz.

Energy prices jumped 2.8 percent, adding to December's modest increase. An increase in the gasoline index was the main factor, and the indexes for fuel oil and natural gas rose as well, the agency noted.

The food index rose 0.2 percent in January.

Core prices, excluding food and energy, slipped 0.1 percent, marking the first decline since 1982. The core measure of inflation, which was expected to rise 0.2 percent, was weighed down by lower costs for housing, new vehicles and airline prices.

"The driving force behind the stagnation in core prices is housing costs," said Paul Ashworth, Senior US Economist at Capital Economics.

"Altogether, housing costs fell by 0.3%. The moderation in rents is a response to the collapse in the housing market that started several years ago. Many of the homes that can't be sold have been put up for rent, driving up the vacancy rate and driving rents down," Ashworth noted.

In contrast, the medical care index posted its largest increase since January 2008, and the index for used cars and trucks increased significantly for the sixth month in a row.

(Market News Provided by RTTNews)