U.S. Consumer Prices Up Slightly in January

By Dow Jones Business News, 
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WASHINGTON--Consumer prices held nearly flat last month, reflecting tepid overall inflation across the economy as the Federal Reserve rolls back one of its key easy-money policies.

The consumer-price index, which measures how much Americans pay for everything from hospital visits to heating oil, advanced a seasonally adjusted 0.1% in January from the prior month, the Labor Department said Thursday. Core prices, which strip out volatile food and energy costs, also were up 0.1%.

Compared with a year earlier, overall consumer prices increased 1.6%. That was the strongest year-over-year gain since July, moving closer to the Fed's 2% target for annual inflation.

But the recent stretch of unusually cold winter weather is likely at least partially responsible for January's gain. Electricity prices rose 1.8% last month, the largest increase since March 2010. Natural-gas prices were up 3.6%. The frigid weather has caused many households to keep their furnaces and heaters running.

"Heating fuels spiked more than normal because of intense winter demand, " IHS Global Insight economist Michael Montgomery said. But there are no signs of a further inflation breakout in the next six months. "People are getting lean wage increases in 2014 because price gains have been modest over the past year, and the jobless rate remains high," he said.

The Fed is monitoring inflation pressures as it contemplates another reduction to its bond-purchase program. The central bank voted in January to cut the pace of purchases by $10 billion to $65 billion a month. The Fed next meets in mid-March.

Inflation has accelerated modestly in recent months after dipping to a 1.0% annual gain in October.

"As we move away from the low inflation rate of the fall, Fed officials who are concerned about deflation will take a little bit of comfort," said Conrad DeQuadros, an economist at RDQ Economics.

Prices for medical care increased 0.3% on the month, driven by higher costs for prescription drugs.

Rising health-care costs ahead could boost the Fed's preferred inflation gauge, the price index for personal consumption expenditures. The measure, compiled by the Commerce Department, is more heavily weighted toward health-care costs.

The overall PCE index accelerated slightly to a 1.1% year-over-year gain in December, the Commerce Department said last month.

Still, the latest inflation reading comes on the heels of consecutive weak payroll reports and other indications that the economy is cooling. If job growth slows and prices remain in check, some Fed officials may rethink their strategy.

Thursday's report showed prices for many services accelerated last month, including shelter, insurance and doctor's visits. Meanwhile, costs for goods such as cars, clothing and shoes declined in January.

Gasoline prices fell a seasonally adjusted 1.0% from December and are nearly unchanged from a year earlier.

"Softness in internationally sensitive goods prices, such as apparel and vehicles, is on par with tepid inflation across most developed countries, " said Barclays Research economist Peter Newland. The gain in services "is consistent with the gradual reduction in spare capacity in the domestic economy."

A separate Labor Department report Thursday showed inflation-adjusted average weekly earnings rose 0.1% in January from the prior month. Real weekly earnings were up 0.4% from a year earlier. Weak earnings gains suggest consumers have little additional spending power.

Write to Eric Morath at eric.morath@wsj.com and Jonathan House at jonathan.house@wsj.com

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