Associated Press | Consumer prices rose less than expected in January while prices
excluding food and energy actually fell, something that hasn’t happened
in more than a quarter-century.

The Labor Department said Friday that consumer prices edged up 0.2
percent in January while prices excluding food and energy slipped 0.1
percent. That was the first monthly decline since December 1982.

The benign inflation news gives the Federal Reserve more time to keep interest rates at record-low levels to shore up the economy and should ease worries in financial markets that a Fed rate hike is more imminent.

The news on consumer prices was better than expected, especially after a government report Thursday showed that wholesale prices shot up 1.4 percent in January.

“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, the biggest one-month gain since August. Energy prices were driven up 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 by 1.3 percent.

The 0.1 percent fall in core inflation, which excludes energy and food, was the first monthly decrease in core inflation since a similar 0.1 percent fall in December 1982. This drop reflected falling prices for shelter, new cars and airline fares.

The decrease underscored the absence of inflation pressures at the moment and should help ease worries in financial markets about a likely Fed rate hike. Those concerns were triggered on Thursday when the Fed announced that it would increase its discount lending rate by a quarter-point to 0.75 percent. This is the rate it charges banks for emergency loans.

Although the Fed said the step should not be seen as a signal that it would soon begin raising a key target for consumer and business loans, global financial markets were roiled by the Thursday announcement.

Private economists, however, said they still believe that the Fed’s first increase in the more important federal funds rate will not occur until this fall at the earliest because they expect inflation to remain tame as the country struggles to mount a sustained 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, which means businesses don’t have the ability to boost the price of their goods.

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, the biggest one-month gain in two years, while 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 while new car prices fell 0.5 percent and clothing costs were down 0.1 percent.