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Consumer Prices Jump 0.2%, On Higher Food, Medical Care Costs

Consumer prices and core inflation both rose more than expected in January, as food costs jumped and medical costs posted the biggest increase in 15 years, the Labor Department reported.

Meanwhile, a gauge of future economic activity rose modestly in January, an industry-backed trade group said Wednesday, suggesting the U.S. economy will continue to post modest gains in the coming months.

The latest data on consumer prices was a blow to the recently improving inflation trend. The consumer price index rose 0.2%, compared with an expectation for overall consumer prices to rise 0.1%.

Meanwhile the core CPI, which excludes food and energy costs, rose 0.3% for the first time since last June. This put its year-over-year pace higher for the first time since September.

Analysts had expected core prices to be up 0.2%.

Energy costs slid 1.5%, partly reversing a 4.2% gain in December. But medical costs rose 0.8%, the steepest increase since a matching 0.8% gain in August 1991. In addition, food costs grew 0.7%, the biggest increase since April 2005.

Consumer prices rose 2.1% from January a year ago, while core prices rose 2.7% over the same 12-month period. Analysts were expecting overall consumer prices to rise 2.0% from January a year ago and for core prices to rise 2.6%.

"January’s CPI release has been somewhat more prone to upside surprises in recent years than other months," said Peter Kretzmer, a senior economist at Bank of America. "Nevertheless, today’s report will increase Fed concerns about elevated underlying consumer inflation."

Federal Reserve officials have said they expect inflation to moderate from what they consider elevated levels, but add that they stand ready to raise interest rates to tamp down any
inflation pressures if necessary.

Effective with this release the Labor Department will report the CPI to three decimal places and calculate the percentage change, to one decimal place, based on the three decimal place index. It is believed that this will eliminate a rounding problem that has arisen from time to time and improve the precision of the numbers.

Leading Indicators Rise 0.1% In January

The Conference Board said its index of leading economic indicators rose 0.1% last month, dampened by the housing market slump and sluggish auto manufacturing. The reading was slower than the revised 0.6 reading from December and lower than the 0.2% rise economists were expecting.

The index, which stood at 138.5 versus a revised 138.3 in December, is closely watched because it is designed to forecast economic activity over the next three to six months.

Four of the 10 leading indicators expanded in January, led by money supply and consumer expectations. Jobless claims and stock prices also pointed to growth.

Six of the indicators fell: the factory workweek, building permits, capital-goods orders, the interest-rate spread, vendor performance and consumer-goods orders.

In the past six months, the index is up 0.7%, with five of the 10 indicators expanding over that time.

In January, the coincident index increased 0.1%, with three of the four indicators increasing. The lagging index fell 0.1%.

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