Consumer prices rose slightly in January, mainly lifted by energy and apparel costs due to the tension with Middle Eastern countries and a cotton supply shortage.
The 0.2 percent is lower than economists’ forecasts, and they believe that current inflation is being contained by the Federal Reserve, which initially targeted a 2-percent inflation gain for the year 2012.
The rising geopolitical conflict between Iran and Western countries has brought pressure at the U.S. gas pump recently, raising the prices of gasoline for the first time in four months. The national average gas price has increased 9.9 percent in the past 12 months, jumping to $3.443 per gallon by the end of January.
While oil costs increased sharply, the 2.9 percent decline in natural gas costs moderated the total energy prices. The new drilling technique is revving up the economy in the key geographic regions and lowering heating costs for families who use natural gas. The Producer Price Index in January showed the biggest slide in home electric power prices since 2004.
Overall food prices went up 0.2 percent in part because of a sharp surge in dairy product, which moved up 9 percent in total over last year.
Excluding volatile gas and food prices, the core Consumer Price Index, rose up 0.2 percent last month, was driven by a big jump in clothing prices that have contributed a 0.9 percent gain. Cotton prices were a key-driving factor, increasing nearly 6 percent, with concerns that the demand is rising while global supply is weak.
“This [inflation rate] is exactly what we expected,” said Samuel Coffin, an UBS economist, adding that slight inflation indicates a positive sign of economic recovery. The 0.2 percent rise in January – roughly equivalent to 2 percent a year – is what the Fed was aiming for.
Clothing prices will not continue to rise, economists asserted, but the soaring gas prices may scare consumers into reducing spending early this year despite the job market has now been gradually picking up steam.
“We will see in the first half of this year that the [economic] growth is slow,” said Ryan Sweet, a senior economist at Moody’s.
But the growing employment will eventually increase demand, he added, and consumers will start to regain their confidence later this year.
Both Coffin and Sweet forecast a moderate increase in food and energy prices in the future, as does Steven A. Wood, the president of Insight Economics, LLC, who stated in his latest CPI advisory report that the index will continue to climb in the next several months with “relatively low monthly core inflation rate.”