- The Washington Times - Wednesday, February 21, 2007

2:21 p.m.

Inflation at the consumer level rose by a larger-than-expected amount in January as falling energy prices only partially offset big increases in the cost of medical care, food and airline tickets.

The Labor Department reported yesterday that prices rose by 0.2 percent in January. That was down from a 0.4 percent rise in December, but it was higher than the 0.1 percent increase Wall Street had been expecting.

Core inflation, which excludes volatile energy and food components, also was up more than analysts had been expecting, rising by 0.3 percent. It was the largest one-month gain in seven months.

In other economic news, a key gauge of future economic activity rose a tiny 0.1 percent in January, held back by the ailing housing and auto markets.

The increase in the Conference Board’s Index of Leading Economic Indicators followed a much larger 0.6 percent December increase and was lower than the 0.2 percent advance analysts were expecting.

On Wall Street, investors were spooked by the higher-than-expected inflation reading, sending the Dow Jones industrial average down by 58 points in late-morning trading.

While energy prices dropped by 1.5 percent, food prices were up 0.7 percent, the biggest rise since spring 2005, as the cost of dairy products, fruits and vegetables all showed big gains.

The cost of medical care shot up 0.8 percent, the biggest increase in more than 15 years, reflecting higher costs for prescription drugs and doctors services, which were rising in January at the fastest clip in 25 years.

Airline tickets jumped by 2.1 percent, the biggest gain since November 2004. The cost of tobacco products rose by 3.1 percent, the largest increase in 4 1/2 years.

The report on consumer prices came a week after Federal Reserve Chairman Ben S. Bernanke had relieved fears in financial markets about possible interest rate increases because of inflation.

Delivering the Fed’s latest economic forecast to Congress, Mr. Bernanke had signaled growing confidence that inflation was heading lower, although he said the Fed was still worried about some unexpected developments that could push prices higher.

For all of 2006, consumer prices rose by 2.5 percent, the smallest increase in three years, helped by big declines in energy costs in the second half of the year after a sharp run-up in energy costs through last summer.

For January, gasoline pump prices fell by 3 percent, leaving them 2.7 percent lower than they were a year ago and 32 percent lower than their peak in July of last year.

Natural gas and fuel oil costs also were down last month, giving a boost to consumers during the winter heating season. However, the cost of electricity was up 2 percent, on a seasonally adjusted basis, from the price in December.

The 0.3 percent rise in inflation excluding food and energy was the biggest increase in this category since a similar 0.3 percent rise in June of last year.

It left core prices rising by 2.7 percent over the past 12 months, far above the Fed’s comfort zone of 1 percent to 2 percent increase in the core.

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