Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=228191
Story Retrieval Date: 12/17/2014 3:37:43 PM CST

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Shu Zhang/MEDILL

Inflation rose slightly in January but remains under control.


Cold temperatures boost home heating costs but overall inflation remains on ice

by Shu Zhang
Feb 20, 2014


Consumer prices rose slightly in January mainly driven by the increasing price of household energy, the U.S. Bureau of Labor Statistics reported Thursday.

 
The Consumer Price Index went up a tepid of 0.1 percent last month, a slower increase than in December and below economists’ projection of a 0.2 percent increase.

Surging home energy demand related to extreme weather led to a 1.8 percent increase in the electricity index, the biggest jump since March 2010. The indexes for natural gas and fuel oil also posted sharp rises, offsetting a 1 percent decline in gasoline prices. Winter freezes across the country slowed mall and dealership traffic and prompted many consumers to stay home.

Costs for food remained stable, rising only 0.1 percent. That was in line with “the tight 0.0 percent-0.2 percent range that food prices have generally kept to since early 2012,” noted Jimmy Coonan, a J.P. Morgan economist, in a note Thursday.

Core consumer prices, excluding energy and food, gained 0.1 percent in January, matching economists’ expectation. A 0.3 percent rise in the cost of housing was a major contributor. Costs for medical care, recreation, personal care and tobacco also advanced slightly.

On the flip side, the costs of airline fares, new vehicles, used cars and trucks and apparel went down slightly.

During the last 12 months consumer prices advanced 1.6 percent before seasonal adjustment, below the Federal Reserve’s inflation target rate of 2.0 percent. That’s a sign that the U.S. inflation is under control, economists said.

“Inflation continues to be tame, but deflation is not a real threat,” said Peter Morici, professor of economics at University of Maryland. He suggested the Federal Reserve continue tapering its bond-buying program.

While keeping prices stable is good for most economies, deflation can be hazardous, many economists agree. That’s because falling prices may indicate an economy is contracting.

But Diane Swonk, chief economist at Mesirow Financial Holdings Inc. in Chicago, is more worried the economy could slip into deflation. “Indeed, the risk is that prices could decelerate further, especially once temperatures return to more seasonal levels and heating costs fall,” Swonk wrote in an blog post.