Energy pushes consumer price index up in January

WASHINGTON -- Consumer prices rose by the most in six months in January, propelled by higher energy costs. But over the past year inflation has been flat, the lowest reading in more than a half-century.

The Labor Department says consumer prices rose 0.3% last month, biggest monthly increase since a 0.7% rise in July.

But even with the January increase, which was in line with economists' expectations, inflation for the 12 months ended in January was zero.

That's the lowest reading since prices actually fell 0.4% for a 12-month period ended in August 1955.

Core inflation, which excludes energy and food, showed a modest increase of 0.2%, slightly higher than the 0.1% gain economists expected. Over the past 12 months, core inflation rose 1.7%, lowest reading since a similar increase for the 12 months ended in August 2004.

While falling prices appeal to consumers, the Federal Reserve is alert for the possibility of deflation, an exteded period of falling prices, which can make a recession worse by dragging down Americans' wages, and clobbering already-stricken home and stock prices. Dropping prices already are hurting businesses' profits, forcing them to slice capital investments and lay off workers.

The last period of deflation in the U.S. occurred during the Great Depression in the 1930s; Japan battled deflation during its "lost" decade of the 1990s.

Most economists believe deflation is a remote threat. However, they have grown more concerned in recent months as the severity of the current recession, already the longest in a quarter-century, intensifies.

Energy prices rose 1.7% in January, first increase following five months of big declines. The advance was led by a 6% jump in gasoline prices. Even with that gain, prices at the pump are still more than 40% below year-ago levels.

Most economists believe consumers will not be battered again this year by soaring energy costs because global demand has fallen sharply in the face of a worldwide recession.

Food costs rose a slight 0.1% in January and over the past year increased 5.2%. Prices for meat, dairy products and fruits and vegetables all were lower in January than a month earlier.