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US Inflation Edges Closer to Fed Target

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US Inflation Edges Closer to Fed Target

US consumer inflation registered a small increase last month, as higher energy prices offset declines in apparel and automobiles.

Consumer prices in the United States rose 0.1 percent in January, after rising at a 0.2 percent clip the previous month, the Labor Department reported today. Compared to a year ago, consumer prices rose 1.6 percent, matching forecasts. The so-called core value, which excludes volatile products such as food and energy, rose 0.1 percent in January. Core prices registered the smallest annual gain in seven months, official data showed.

The energy price index rose 0.6 percent last month and 2.1 percent annually, led by increases in household energy components. Electricity prices rose 1.8 percent in January, the largest increase since March 2010. Compared to year-ago levels, electricity prices were 4.4 percent higher.

Food prices barely rose last month (0.1 percent), while new vehicles (-0.3 percent), used cars and trucks (-0.5 percent) and apparel (-0.3 percent) all registered declines.

Although consumers prefer lower prices, weak inflation is a sign of sluggish economic growth. With CPI at 1.6 percent, however, disinflation is unlikely to become a reality in the United States.

While disinflationary pressures are expected to remain at bay, consumer prices in 2013 remained well below the Federal Reserve’s target of 2 percent. Consumer prices rose 1.5 percent in all of 2013, down from 1.8 percent in the previous year. As the Federal Reserve looks to unwind record stimulus, inflation is seen as a key guidepost to determining the pace and timing of bond cuts. The Fed initiated the process in December and has since pared bond purchases by $20 billion.

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