US consumer prices rose more than expected in January despite a dip in energy prices, as medical costs jumped, according to a Labour Department report today that revived worries of inflation.
Consumer prices rose 0.2 per cent, while core prices, which exclude food and energy costs, climbed 0.3 per cent.
Analysts were expecting overall consumer prices to climb 0.1 per cent and for core prices to rise by 0.2 per cent.
The higher-than-expected numbers raised concerns the Federal Reserve, which has said it is vigilant against any rise in inflation, might need to eventually raise interest rates to tamp down price pressures, rather than lower them, as markets had anticipated. The report led financial markets to trim bets on interest-rate cuts.
US Treasury debt prices fell, US stock futures added to losses and the dollar rose. "This adds credibility to Fed chairman Ben Bernanke in his monetary report to Congress last week that inflation remains a concern," said Richard DeKaser, chief economist for National City Corporation in Cleveland.
Energy costs slid 1.5 per cent, partly reversing a 4.2 per cent gain in December. But medical costs rose 0.8 per cent, the steepest increase since a matching 0.8 per cent gain in August 1991. In addition, food costs grew 0.7 per cent, the biggest increase since April 2005.
Consumer prices rose 2.1 per cent from January a year ago, while core prices rose 2.7 per cent over the same 12-month period. Analysts were expecting overall consumer prices to rise 2.0 per cent from January a year ago and for core prices to rise 2.6 per cent.
Mr Bernanke told Congress last week he expects inflation to moderate from what the Fed considers elevated levels, but added that policy-makers stand ready to raise interest rates to tamp down any inflation pressures if necessary. In a separate report released today, US mortgage applications dropped more than 5 per cent last week, hitting their lowest level this year, even as interest rates fell, an industry trade group said.
Meanwhile, US chain store sales fell 0.1 per cent in the week of February 17th after a 0.8 per cent decrease in the prior week, according to a report by the International Council of Shopping Centers and UBS Securities.