Consumer prices edge up
January CPI rises slightly but inflation still a distant threat.
February 20, 2002: 9:32 a.m. ET
|
NEW YORK (CNN/Money) - Consumer prices in the United States edged up in January as energy prices rebounded from last year's lows, the government said Wednesday, though inflation remained a distant threat in a sluggish economy.
The Labor Department said the Consumer Price Index, the government's main inflation gauge, rose 0.2 percent after falling 0.1 percent in December. Economists surveyed by Briefing.com expected CPI to rise 0.2 percent.
Excluding often volatile food and energy prices, the "core" CPI rose 0.2 percent after rising 0.1 percent in December. Economists surveyed by Briefing.com expected core CPI to rise 0.2 percent.
"We've gotten to a point now where inflation is something which, for the most part, we don't really think about," Bill Cheney, chief economist at John Hancock Financial Services, told CNNfn's Before Hours program. "And I guess that's exactly the way [Federal Reserve Chairman Alan] Greenspan wants it."
U.S. stock prices rose in early trading, while Treasury bond prices fell.
To keep consumers spending despite rising unemployment and an economic recession that some economists think began in March 2001, the Fed cut its target for short-term interest rates 11 times in 2001.
But the Fed also must be careful that its aggressive monetary policy doesn't fuel inflation, although that has been a distant threat during the prolonged slowdown. Energy prices rebounded 0.9 percent in January, but that followed three straight months of heavy declines, including a 3.0-percent drop in December.
|  | |
 |
|
|
| |
CNNfn's Kathleen Hays takes a closer look at the consumer price index.
| |
|
The Fed decided in January to leave interest rates alone, ending its aggressive rate-easing policy amid signs that the economy is beginning to recover. Some observers think that inflation fears will push the Fed to start raising rates again sometime in 2002.
But many economists also doubt that the recession's end will bring a dramatic jump in economic growth, especially since consumer spending -- which which fuels two-thirds of U.S. gross domestic product (GDP), the broadest measure of economic strength -- has remained so strong throughout the slowdown.
"If the economy picks up really strongly this year, then the Fed is going to be looking at an inflation problem, let's say, in the second half of the year," Cheney said, "which would require them to start tightening [interest rates] pretty soon. But I don't think they see that yet."
Click here for CNN/Money's economic calendar
In fact, some of the strength in consumer spending has hurt businesses' ability to raise prices. Prices for new and used automobiles, for example, fell 0.5 percent in January, with consumers less likely to buy cars after taking advantage of zero-percent financing and other aggressive incentives at the end of 2001.
As a result, many companies are trying to protect their profits by improving productivity and cutting jobs. That's bad news for many workers, but could be good news for prices in the long run, since higher productivity helps the economy grow with less risk of inflation. 
|
|
|
|
|
|
|
