Consumer prices excluding food and energy fell in January — the first time they have in any month since 1982.
The benign report Friday on consumer inflation sent a positive signal to investors. It suggested the Fed will be able to keep short-term interest rates at record lows to strengthen the economic recovery without triggering inflation.
Some have worried that a Fed rate increase affecting consumers and businesses might be imminent, especially after it just raised the rate banks pay for emergency loans.
But the news of low inflation eased some concerns and helped lift stock prices. In midday trading, the Dow Jones industrial average rose about 29 points, or 0.3 percent. Broader stock averages also gained. Bond prices were little changed, but the dollar rose against other major currencies.
Overall consumer prices edged up 0.2 percent in January, the Labor Department said. But excluding volatile food and energy, prices fell 0.1 percent. That drop, the first monthly decline since December 1982, reflected falling prices for housing, new cars and airline fares.
The news was better than expected, especially after the government said Thursday that inflation at the wholesale level, excluding food and energy, rose 0.3 percent in January. That was faster than the 0.1 percent increase economists had predicted.
"After a few reports showing higher inflation trends, we saw proof today that they have yet to trickle down to the consumer level," said Jennifer Lee, senior economist at BMO Capital Markets. "What price pressures did exist all came from the volatile food and energy categories."
The 0.2 percent rise in overall prices reflected a 2.8 percent jump in energy costs. That's the biggest one-month gain since August. Energy prices were driven by a 4.4 percent rise in gasoline pump prices and a 3.5 percent increase in the cost of natural gas.
Food prices rose a moderate 0.2 percent, even though fruit and vegetable costs jumped 1.3 percent.
In raising the rate banks pay for emergency loans, the Fed said Thursday its action should not be seen as a sign that it would soon begin raising a key target for consumer and business loans. Still, global financial markets were roiled by the Thursday announcement.
Private economists said they believe that the Fed's first increase in the more important federal funds rate will not occur until this fall at the earliest. That's because they expect inflation to remain tame as the economy struggles to sustain the rebound from a deep recession.
High unemployment is keeping a lid on wage gains. And consumer spending is being constrained by the weak income growth. Businesses don't have the ability to raise prices.
The Consumer Price Index report for January did show some price increases in scattered areas. The price of medical care rose by 0.5 percent. It was the biggest one-month gain in two years. And the cost of tobacco products increased 0.4 percent, the biggest increase since November.
But the price of airline tickets dropped by 2.5 percent. And new-car prices fell 0.5 percent. Clothing costs dropped 0.1 percent.
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