Consumer Prices Up 0.3%, First Gain Since July

Consumer prices rose in January as energy costs rebounded, government data showed on Friday, temporarily easing fears of deflation amid a severe economic downturn.

Paul Sakuma / AP

The Labor Department said its closely watched Consumer Price Index rose 0.3 percent, advancing for the first time since July, after falling 0.8 percent in December. The increase was bang in line with market expectations.

Stock index futures pared losses after the data, while government bond prices trimmed gains.

Analysts said the rebound in both the headline CPI and producer price index appeared to briefly calm fears about deflation, but the general trend remained one of lower prices as the 13-month old recession worsens.

"This has allayed temporarily fear of heightening deflation," said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, N.J.

Deflation is normally described as a dangerous spiral of falling prices causing economic contraction as consumers hold off purchases in the hopes of even lower prices.

The Federal Reserve said on Wednesday that most policy-makers at the U.S. central bank want to see inflation in a 1.7 percent to 2 percent range over the long haul.

Some officials have hoped announcing what amounts to a target for inflation would help keep any expectations of deflation at bay. If expectations of deflation were to build, they could become self-fulfilling.

On a year-over-year basis, consumer prices were flat, the weakest reading since August 1955. The index rose 0.1 percent year-on-year in December.

Core prices, which exclude food and energy items, rose 0.2 percent after being flat in December. That compared to analysts' prediction for a 0.1 percent increase. On a year-over-year basis, core CPI was up 1.7 percent.

Analysts said the January inflation figures had probably been distorted by seasonal factors.

"You have to take the January numbers with a grain of salt because a lot of firms will try to pass along annual price increases early in the year," said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla.

Energy prices rebounded 1.7 percent in January, reversing five months of declines. However, compared to the same period last year, energy prices tumbled 20.4 percent.

The rise in consumer prices saw real average weekly earnings falling by 0.1 percent in January.

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