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Thursday, Feb 21, 2013 1:45 PM UTC

US consumer prices flat in January for 2nd month

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Topics: From the Wires,

WASHINGTON (AP) — U.S. consumer prices were flat last month, the latest sign inflation is in check. That could give the Federal Reserve leeway to continue its efforts to stimulate growth.

The consumer price index has risen 1.6 percent in the 12 months ending in January, the Labor Department said Thursday. That’s down from a 2.9 percent pace a year ago.

Excluding the volatile food and energy categories, core prices rose 0.3 percent in January, pushed up by higher costs for apparel, air fares and rents. Core prices have risen 1.9 percent in the past year, below the Fed’s inflation target.

The Fed is purchasing $85 billion in Treasurys and mortgage bonds each month in an effort to keep interest rates low. Last month, some Fed policymakers expressed concern the purchases could cause inflation.

Low inflation leaves consumers with more money to spend, which benefits the economy.

Inflation slowed dramatically last year. Consumer prices rose only 1.7 percent in 2012, down from 3 percent in 2011.

Food prices rose 1.8 percent last year, compared with 4.7 percent in 2011. Gas prices rose just 1.7 percent. That followed annual gains of nearly 10 percent in 2011 and roughly 14 percent in 2010.

The relief at the pump ended in recent weeks, with prices rising steadily this month. Higher gas prices will likely push up measures of inflation in February, though economists expect overall price increases to stay mild.

Gas prices averaged $3.77 a gallon nationwide on Wednesday, according to AAA. That’s up 46 cents from just a month ago.

Tame inflation also makes it easier for the Fed to continue its efforts to accelerate the economy. If the Fed feared that prices were rising too fast, it might have to raise interest rates. The Fed has kept the benchmark interest rate it controls at nearly zero, a record low, for more than four years.

With job gains and economic growth steady but modest, many businesses are reluctant to raise prices for fear of losing customers. That’s helped keep inflation mild. Workers also aren’t able to demand higher wages when growth is weak. That limits their ability to spend more.

Still, several Fed policymakers suggested last month that the central bank might have to scale back its bond buying to avoid escalating inflation or disrupting bond markets, according to minutes of the Fed’s Jan. 29-30 meeting released Wednesday.

By Christopher S. Rugaber

More By Christopher S. Rugaber.

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