US consumer prices rise as food, fuel costs increase

The overall consumer price inflation in the U.S. rose 0.4 percent in January on a seasonally adjusted basis, the Bureau of Labor Statistics (BLS) said on Thursday. The rise in inflation was mainly driven by increases in energy, commodities and food prices, the report said.

The core consumer prices, which exclude food and energy, rose 0.2 percent in January after increasing 0.1 percent in each of the previous two months. The rise in the core prices was driven mainly by increases in shelter and airline fares indices as well as rise in prices for medical care, used cars and trucks and tobacco.

The rise in inflation exceeded economists' expectations for a 0.1 percent gain. While the food index rose 0.5 percent in January, the energy index continued its recent string of increases, rising 2.1 percent.

The spike in inflation has come after official data showed on Wednesday that Producer Price Index for finished goods rose a seasonally adjusted 0.8 percent in January. The PPI is an inflationary indicator that measures the average change in selling prices received by domestic producers of goods and services.

The recent surge in commodity prices will have a pronounced effect on consumer price inflation over the next six months. It takes around eight months for shifts in agricultural commodity prices to feed through into the price of finished foods, research firm Capital Economics said before the inflation data was released.

We expect headline CPI inflation to accelerate from 1.4% at the end of last year to at least 2.5% by mid-2011. In addition, the downward trend in core inflation is expected to abate temporarily. Nevertheless, with the unemployment rate expected to remain unusually elevated, we don't think the Fed will respond to what should be a temporary pickup in inflation by tightening monetary policy, Capital Economics said.