Consumer price index shows slowing inflation

Gas prices are creeping up again, after being on the decline.

Gas prices are creeping up again, after being on the decline. Image: Reiver/Flickr/CC BY-SA

The U.S. Department of Labor’s recent consumer price index report was flat in January for the second month in a row. It is the most recent indication that inflation is leveling off in the United States.

Consumer price index slows from last year

On Thursday, Feb. 21, the Labor Department said that the consumer price index rose by 1.6 percent in the 12 month period ended on Jan. 31, 2013. That is a drop from the 2.9 percent seen in the same period from a year earlier. Lower inflation encourages consumers to spend, and consumer spending drives about 70 percent of the economy.

Fed continues to lower interest rates

The Federal Reserve System has been buying up $85 billion in treasury and mortgage bonds each month to keep interest rates artificially low in an effort to drive the economic recovery. However, some fear that the continued practice could eventually lead to a higher inflation rate. However, that does not seem to be the case at this time.

Dan Greenhaus, chief global strategist at BTIG, said, “As long as inflation readings remain relatively constrained and inflation expectations do not get out of control, the [Federal Reserve] has plenty of runway to continue its program.”

Economist Paul Ashworth said, “At a time when the Fed is becoming more concerned about the costs of its unconventional monetary policies, it is striking that the inflation outlook remains benign.”

Core prices continue to rise

Core prices went up by 0.3 percent from December to January. That is, the cost of all goods, excluding the typically-volatile food and energy costs. Gas prices are included in those energy costs. Core prices grew by 1.9 percent in the previous 12 months, below the target set by the Federal Reserve.

Core prices grew by the highest amount in nearly two years, and was mostly driven by increased costs in clothing, air fare and hotel lodging. Some analysts believe that could continue, causing inflation to creep up a bit.

Food and energy

The cost of food grew only 1.8 percent last year. Two years ago, that was 4.7 percent. Gas prices, which had been on the wane, are beginning to creep back up. That could have a mild impact on inflation in the current month. According to AAA, the average gallon of gas cost $3.77 on Wednesday, Feb. 20. A month earlier, that was $4.23.


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