WASHINGTON (AFP) — US consumer prices rose a slightly stronger-than-expected 0.4 percent in January, largely due to rising gasoline and food costs, a government survey showed Wednesday.
Most economists had expected headline inflation to rise 0.3 percent after the consumer price index (CPI) increased 0.4 percent in December.
The core CPI index, which strips out volatile food and energy costs, increased 0.3 percent last month, the Labor Department said in a monthly report.
The gain in the core reading was the strongest since June 2003. Most analysts had predicted that core CPI would increase 0.2 percent.
The government snapshot showed that medical costs and airline ticket prices stoked the core CPI reading higher in January while buoyant food and energy costs lifted headline consumer prices.
Out of the basket of services and goods tracked by the government, prices for prescription drugs jumped 0.7 percent in January, marking the sharpest gain in drug prices in 12 months.
An increase in gasoline and fuel oil costs last month also contributed to the overall gain in the core CPI reading.
In the 12 months to January, headline consumer inflation rose 4.3 percent while the core CPI increased 2.5 percent.
The Federal Reserve is keeping a close watch on inflationary pressures as sharp price spikes could threaten its rate-cutting campaign, which it launched in September in the face of a lingering housing market slump and a related credit crunch.
"The Fed is in a bind. What will the FOMC do? More than likely, we will get another rate cut at the March 18th meeting. But there will be great debate about going slow and more importantly, once the economy begins to turn, look for the Fed to unwind the rate cuts rapidly," said Joel Naroff, the president of Naroff Economic Advisors.
The Federal Open Market Committee (FOMC), overseen by Fed chairman Ben Bernanke, has cut its key federal funds short-term rate to 3.00 percent from 5.25 percent in recent months, and most economists expect the Fed to declare another rate cut at a March 18 meeting.
The central bank is due to release the minutes of its last policy meeting later Wednesday, as well as fresh growth forecasts for the current year.
Economists say the Fed's ability to keep cutting rates could be hampered if inflationary pressures spike, despite fears the world's biggest economy could be sliding into a recession.
Inflationary concerns were renewed Tuesday when New York oil prices hit a record high of 100.10 dollars a barrel on global supply jitters. Oil prices receded somewhat Wednesday morning, but are still hovering close to 100 dollars.
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