WASHINGTON, (Reuters):
UNITED STATES consumer prices inched up 0.1 per cent in January as energy costs tumbled for the second straight month, according to a report yesterday that helped soothe recent anxiety about inflation.
Excluding volatile food and energy costs, the Consumer Price Index rose 0.2 per cent for a fourth straight month in January, the Labour Department said.
Wall Street economists had expected a 0.2 per cent rise in the CPI, both overall and excluding food and energy, but traders had braced for larger gains after a report on Friday showed a big pickup in core producer prices.
The tame consumer price report helped allay concerns the Federal Reserve could step up its so-far "measured" campaign of interest-rate rises to keep inflation in check.
"Inflation at the end of the day is headed higher, it's just not going to happen that dramatically this year," said Mark Vitner, an economist at Wachovia Securities in Charlotte, North Carolina. "This leaves the Fed exactly where they are."
Easing inflation concerns helped boost U.S. stock markets with the Dow Jones industrial average finishing more than 62 points higher. The technology-heavy Nasdaq composite eked out a gain of less than 1 point on the day.
GOVERNMENT BONDS
U.S. Government bonds ended higher but an early CPI-led rally lost some of its steam after minutes from the Fed's last policy meeting, showed officials thought rates too low to keep inflation stable after six increases.
Energy prices dropped 1.1 per cent in January, with fuel oil prices off 5.2 per cent, natural gas costs down 3.0 per cent and gasolene off 2.1 per cent.
However, energy prices have risen sharply over the past year and a recent renewed climb in crude oil threatens further gains. U.S. benchmark crude oil prices soared to a 16-week high of $51.40 on Tuesday and eased only a little yesterday.
"It is questionable how much comfort market participants can take from these estimates" of January's energy price drop, said Roger Kubarych, senior economic adviser at HVB Bank.
MISSING THE TARGET?
Fed Chairman Alan Greenspan told Congress last week the economy had kicked off the year in good shape "with inflation and inflation expectations well anchored."
Merrill Lynch Chief North American Economist David Rosenberg said the CPI report "illustrates how hard it is to pass on costs from the producer to the retail sector, replete as it is with overcapacity and intense competitive pressures."
Some economists, however, said price pressures were slowly building and said the Fed's forecast for a 2005 increase of 1.5 per cent to 1.75 per cent in its favourite core inflation measure, released just last week, already was in jeopardy.
