Agencies

Washington, February 23

A sharp rise in energy costs pushed US consumer prices up last month at the fastest pace in nearly a year, but underlying price pressures remained muted, a government report showed.

The consumer price index (CPI), the most widely used gauge of US inflation, climbed by 0.5 per cent in January after a 0.2 per cent rise the month before, the Labour Department said.

The core CPI, which strips out volatile food and energy prices, gained just by 0.2 per cent. Wall Street economists had expected the overall CPI to rise by 0.3 per cent and the core index to tick up by 0.1 per cent.

The mild increase in core inflation, while larger than expected, held the 12-month change steady at the 38-year low of 1.1 per cent. Federal Reserve officials see such a low rate of change as tantamount to price stability.

Fed Governor Ben Bernanke told reporters the report was "consistent with continuing low inflation." "Energy prices are highly volatile and they tend to reverse over a period of time," he said. Still, he warned that if energy costs kept marching upward it could slow growth.

US Treasury bond prices dipped slightly and the dollar moved up a bit on the higher-than-expected readings — moves exacerbated later by a terror alert in Japan and an upbeat comment on jobs creation from Fed Chairman Alan Greenspan.

Economists said that at most the report showed inflation stabilising after a period of slowing. They said the Fed could bide its time before pushing overnight interest rates up from their 1958 low of one per cent.