Consumer Prices Pushed Higher

Wednesday, February 21st 2007, 8:24 am
By: News On 6

WASHINGTON (AP) _ Inflation at the consumer level rose by a larger-than-expected amount in January as falling energy prices only partially offset big increases in the cost of medical care, food and airline tickets.

The Labor Department reported Wednesday that prices rose by 0.2 percent in January. That was down from a 0.4 percent rise in December, but it was higher than the 0.1 percent increase that Wall Street had been expecting.

Core inflation, which excludes volatile energy and food components, also was up more than analysts had been expecting, rising by 0.3 percent. It was the largest one-month gain in seven months.

While energy prices dropped by 1.5 percent, food prices were up 0.7 percent, the biggest rise since the spring of 2005, as the cost of dairy products, fruits and vegetables all showed big gains.

The cost of medical care shot up 0.8 percent, the biggest increase in more than 15 years, reflecting higher costs for prescription drugs and doctor services, which were rising in January at the fastest clip in 25 years.

Airline tickets jumped by 2.1 percent, the biggest gain since November 2004. The cost of tobacco products rose by 3.1 percent, the largest increase in 4 1/2 years.

The report on consumer prices came a week after Federal Reserve Chairman Ben Bernanke had relieved fears in financial markets about possible interest rate hikes because of inflation.

Delivering the Fed's latest economic forecast to Congress, Bernanke had signaled growing confidence that inflation was heading lower although he said the Fed was still worried about some unexpected development that could push prices higher.

For all of 2006, consumer prices had risen by 2.5 percent, the smallest increase in three years, helped by big declines in energy costs in the second half of the year after a sharp run-up in energy costs through last summer.

For January, gasoline pump prices fell by 3 percent, leaving them 2.7 percent lower than they were a year ago and 32 percent lower than their peak in July of last year.

Natural gas and fuel oil costs were also down last month, giving a boost to consumers during the winter heating season. But the cost of electricity was up 2 percent, on a seasonally adjusted basis from the price in December.

The 0.3 percent rise in inflation excluding food and energy was the biggest increase in this category since a similar 0.3 percent rise in June of last year.

It left core prices rising by 2.7 percent over the past 12 months, far above the Fed's comfort zone of 1 percent to 2 percent increase in the core.

The Fed in the forecast Bernanke delivered to Congress last week predicted that inflation pressures will gradually decline over the next two years as growth remains moderate.