Consumers Paid More for Most Goods in January

CHRISTOPHER S. RUGABER | AP Economics Writer

WASHINGTON (AP) – Consumers paid more in January for everything from food and gas to airline tickets and clothing. The price increases reflect creeping but still-modest inflation.

The Consumer Price Index rose 0.4 percent last month, matching December's increase, the Labor Department said Thursday. In the past year, the index has risen 1.6 percent.

Excluding food and energy, the core index rose 0.2 percent. That's the largest increase in more than a year. Core prices increased 1 percent over the past 12 months. That's higher than December's 0.8 percent annual pace, but well below the Federal Reserve's preferred range of closer to 2 percent.

Food prices increased 0.5 percent in January, the most in more than two years. Gas prices rose 3.5 percent.

The report shows that some companies are seeking to pass on higher prices for oil, cotton, and other commodities. But high unemployment and weak wage increases are limiting retailers from hiking up prices.

"With the unemployment rate still at 9 percent, there will be plenty of downward pressure on underlying prices and so we don't expect core inflation to trend upwards," Paul Ashworth, an economist at Capital Economics, said.

More people applied for unemployment benefits last week, the Labor Department said in a separate report. Applications rose by 25,000 to a seasonally adjusted 410,000. It followed a week when applications fell to their lowest level in three years. Although the drop had occurred partly because snowstorms in many areas of the country closed government offices and kept people from applying for benefits.

Applications are well below their peak of 651,000, reached in March 2009 when the economy was in the depths of the recession. Applications below 425,000 are viewed as a signal of modest job growth. But they would need to dip consistently to 375,000 or below to indicate a significant and steady decline in the unemployment rate.

Unemployment fell in January to 9 percent, following the fastest two-month drop in a half-century. But the rate is still very high and economists expect it will stay near the current level for most of the year.

Even so, businesses are starting to pass along price increases. Wholesale prices, excluding volatile food and energy categories, rose in January at the fastest pace in more than two years.

The cost of clothing climbed 1 percent in January, as companies sought to offset the rising price of cotton.

Airline fares increased for the fifth month in a row, rising 2.2 percent. Airlines are struggling with higher jet fuel costs. Delta Air Lines Inc. increased its business class fares earlier this week, a move quickly matched by its competitors.

The cost of housing, which makes up about 40 percent of the core index, rose 0.1 percent, reflecting increases in rents.

Some goods and services are getting cheaper. New and used car prices fell. Hotel prices dropped 1 percent. Computer and technology equipment costs fell 0.8 percent.

Increasing prices for commodities are pushing up costs for businesses, and some are responding by raising their prices. But the impact hasn't broadly affected consumers yet.

Economists expect consumer prices, outside of food and energy, to tick up this year as more companies pass on their rising costs.

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