Feb. 20 (Bloomberg) -- U.S. consumer prices rose 0.5 percent in January, reflecting the largest energy-cost jump since the Iraq War started, a government report showed. Prices excluding food and energy gained 0.2 percent, suggesting inflation remains subdued. The increase in the price index last month followed a rise of 0.2 percent in December, the Labor Department said in Washington. The so-called core index, excluding volatile food and energy prices, climbed 0.1 percent the month before.
Energy prices last month surged as winter weather spurred demand and supplies dwindled. The core index gained 1.1 percent in 2003, the smallest annual increase in 43 years, as unused capacity, productivity gains and competition held down prices and spurred discounting by companies including automaker General Motors Corp. and retailer Sears, Roebuck & Co. ``In general it's still a buyer's market for the consumer,'' said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut, before the report. ``There's a lot of downward pressure on prices, and I don't think we'll see a substantial increase in inflation soon.'' The consumer price index is the government's broadest gauge of costs of goods and services. Almost 60 percent of the index covers prices consumers pay for services, ranging from medical visits to airline fares and movie tickets. Economists had projected a 0.3 percent increase in the consumer price index after a previously reported rise of 0.2 percent for December, based on the median of 67 forecasts in a Bloomberg News survey. Estimates ranged from a rise of 0.1 percent to one of 0.4 percent. Core prices were forecast to rise 0.1 percent.
Energy Costs Surge
Consumer prices for all goods and services climbed 1.9 percent for the 12 months that ended last month, the same as for the year through December. Energy prices jumped 4.7 percent in January after gaining 0.3 percent a month earlier. Last month's gain was the largest since 5.4 percent in March 2003, when the war in Iraq started. Gasoline prices increased 8.1 percent, the most since 8.8 percent last February. Electricity costs rose 0.6 percent and natural gas climbed 3.8 percent. Crude oil futures on the New York Mercantile Exchange rose to a 10-month high of $36.20 a barrel Jan. 20. An explosion at a liquefied natural gas plant halted oil and petroleum product shipments from the second largest Algerian export terminal. U.S. crude-oil supplies were at a 28-year low last month.
Gasoline costs rose to $1.61 a gallon on average last month from $1.52 in December, according to Energy Department statistics.
Auto Prices
According to today's report, new vehicle prices fell 0.1 percent last month, the same as in December. Food prices, which account for about a fifth of the index, were unchanged in January after rising 0.5 percent the month before. The cost of medical care increased 0.2 percent last month after climbing 0.5 percent in December. Housing costs, which include some energy costs and account for one-third of the index, jumped 0.4 percent after rising 0.2 percent.
Airfares gained 0.8 percent last month. Workers' weekly earnings adjusted for inflation climbed 0.2 percent last month after dropping 1 percent in December, the Labor Department said in a separate report. Federal Reserve policy makers have said they expect inflation to remain muted even as the Fed's benchmark lending rate stands at 1 percent, the lowest in almost 46 years.
Fed's Moskow
``The effect of slack resources remains predominant at this time, and we expect inflation to remain low this year, somewhere in the range of 1 to 1.25 percent,'' Chicago Federal Reserve Bank President Michael Moskow said in the text of remarks to the Commercial Club of Chicago yesterday. ``With inflation low, the Fed can be patient in removing its policy accommodation.'' Unused production capacity has helped limit price increases. The proportion of factories, mines and utilities in use reached a two-decade low of 74 percent in June and averaged 74.8 percent last year before edging up to 76.2 percent in January. During the expansion from 1991 to 2001, capacity use averaged 82.2 percent. General Motors, the world's largest automaker, increased incentives 2.4 percent from December to an average last month of $4,431 a vehicle, the most of any automaker, according to CNW Marketing Research Inc. ``What a great time to buy a car or truck,'' said J.T. Battenberg, chief executive officer of Troy, Michigan-based Delphi Corp., the world's largest auto parts maker, in an interview yesterday in Boca Raton, Florida. ``Prices are as low as they've ever been on a percentage of take-home pay. Consumers are in the driver's seat.''
Retail Discounting
Clearance sales helped spur demand at retailers including Columbus, Ohio-based Limited Brands and Hoffman Estates, Illinois- based Sears last month. Kohl's Department Stores Inc., which has offered discounts as high as 80 percent, said sales increased 0.3 percent, the first gain in four months. Other categories in which prices may have risen in January include medical care, rent and education, said Bill Sharp, a senior economist at J.P. Morgan Securities in New York.
U.S. prescription-drug spending rose 12 percent last year, led by sales of Pfizer Inc.'s Lipitor and Merck & Co.'s Zocor cholesterol-lowering medications, according to a study from IMS Health Inc., which tracks prescription trends. Hughes Electronics Corp.'s DirecTV raised prices by about 4 percent during the fourth quarter, Hughes Chief Executive Chase Carey said on conference call last week. The company expects to boost revenue per subscriber by more than 4 percent this year, he said. //www.bloomberg.com