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Consumer prices inch up in January

The 0.3% rise is due mainly to higher energy costs. Economists remain wary of deflation.

February 21, 2009|Associated Press

WASHINGTON — Consumer prices rose modestly in January, propelled by higher energy costs, but economists said they remained concerned about the threat of price declines throughout the economy.

That's because even with last month's increase, prices have been flat over the last year, the lowest reading in more than a half-century.

The Labor Department said Friday that consumer prices rose 0.3% last month, the first increase since prices were up 0.7% in July.

Prices were flat in August and September, then posted huge declines in the fourth quarter of 2008.

The November plunge of 1.7% was the largest recorded decline in 61 years. Prices fell 0.8% in both December and October, the government said, slightly revising lower the original estimates.

Although falling prices appeal to consumers, the Federal Reserve is on alert about deflation, which can make a recession even worse by dragging down Americans' wages and clobbering already-stricken home and stock prices.

Dropping prices already are hurting businesses' profits, forcing them to slice capital investments and lay off workers.

Even with the 0.3% January increase, which was in line with economists' expectations, inflation for the 12 months that ended in January was zero. That's the lowest reading since prices actually fell by 0.4% for the 12 months that ended in August 1955.

Core prices, which exclude energy and food, showed a modest increase of 0.2%, slightly higher than the 0.1% gain economists expected. Over the last 12 months, core inflation was 1.7%, the lowest reading since a similar increase for the 12 months that ended in August 2004.

The last period of deflation in the U.S. occurred during the Great Depression in the 1930s, although Japan battled deflation during its "lost" decade of the 1990s.

Energy prices rose 1.7% in January, the first increase after five months of big declines.

The advance was led by a 6% jump in gasoline prices. Even with that gain, prices at the pump are still more than 40% below year-ago levels.

Food costs rose a slight 0.1% in January and over the last year increased 5.2%. Prices for meat, dairy products and fruits and vegetables all were lower in January than a month earlier.

The 0.2% rise in core prices reflected higher prices for such things as medical care, which rose 0.4%, and education, which increased 0.3%.

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