U.S. consumer prices continued to rise in January as energy and food prices increased, but underlying inflation remained tame as many companies struggled to pass on higher raw materials costs to consumers.
Separately, the number of U.S. workers filing new claims for unemployment benefits rose more than expected last week as the labor market remains sluggish despite the economy's improvement.
The seasonally adjusted consumer price index last month increased by 0.4% from December, the Labor Department said Thursday. Over the last 12 months, prices were up 1.6% before seasonal adjustments.
But underlying inflation, which excludes volatile energy and food prices and is considered a better measure of price trends by the Federal Reserve, rose by 0.2%. The annual underlying inflation rate stood at 1.0% last month, below the Fed's informal target of just under 2.0%.
Economists surveyed by Dow Jones Newswires ahead of the release expected consumer prices to rise by 0.3% and the core consumer price index to gain 0.1%. In December, consumer price inflation showed a 0.4% monthly rise, revised from a previously reported 0.5% gain.
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While wholesale prices rose across the board in January on higher raw material costs, firms are struggling to pass this on to consumers due to persistently high unemployment, which is keeping Americans cautious about spending. Retail sales rose modestly last month, following strong gains during the holiday season.
At their last meeting three weeks ago, Fed officials upgraded their outlook for economic growth. But they still expect slow price increases over the next two years and unemployment to remain close to 9.0% until the end of 2011. For these reasons, they stuck to their easy-money policies, including purchases of $600 billion in Treasury's that are slated to run until June.
Thursday's report showed that higher prices for energy commodities and food accounted for more than two-thirds of the rise in consumer prices. Food prices rose 0.5% in January, the biggest increase since September 2008, with all six major grocery store food groups showing gains.
Energy prices continued their recent string of increases, rising by 2.1% last month as the gasoline index went up for the seventh month in a row.
Other categories showed more subdued price increases and even some declines. Prices for shelter rose 0.1% last month, while the price of new vehicles fell by 0.1%. The price of medical services was down 0.1%, the biggest decline since 1975.
Without rounding, the report showed that consumer prices rose by 0.398% in January from December. Excluding food and energy items, consumer prices increased 0.170%.
In the meantime, real average weekly earnings fell 0.3% over the month in January as both the average workweek and hourly earnings dropped, the Labor Department said.
Jobless Claims Back Over 400,000
Initial jobless claims increased by 25,000 to 410,000 in the week ended Feb. 12, the Labor Department said Thursday in its weekly report.
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Economists surveyed by Dow Jones Newswires had expected claims would rise last week by 17,000 to 400,000.
New claims had fallen sharply over the previous two weeks as employment rebounded from severe winter storms. Now, the jobs market appears to have stabilized near January's levels.
The four-week moving average of new claims, considered a more reliable indicator because it smooths out volatile data, increased 1,750 to 417,750 in the week ending Feb. 12. Jobless claims have been on a gradually downward trend since September 2010.
The U.S. labor market has been slowly improving as the recovery gains momentum. Non-farm payrolls rose by a mere 36,000 jobs in January, but the disappointingly small increase was blamed on snowstorms. The data showed the U.S. jobless rate tumbled to its lowest level since April 2009.
The U.S. economy has been picking up speed in recent months, and the Federal Reserve expects it to grow at a stronger pace this year, lifted by consumer and business spending.
Recent indicators have been mixed as the country shakes off the effect of storms that shut down parts of the country. But the latest batch of data on Wednesday showed surprising gains for the battered housing sector, while U.S. manufacturers continued to increase production.
Still, Fed officials estimate that it will probably take at least four years for unemployment to fall to between 5% and 6% from January's 9.0% rate.
The Labor Department said in Thursday's report that the number of continuing claims--those drawn by workers for more than a week--climbed 1,000 to 3,911,000 in the week ended Feb. 5. Continuing claims are reported with a one-week lag.
The unemployment rate for workers with unemployment insurance was 3.1% in the week ending Feb. 5, unchanged from the prior week.
The state-by-state breakdown of new claims, which is also reported with a one-week lag, showed North Carolina and Michigan with the biggest increases in claims.
States with the largest declines were led by Florida, as it reported fewer layoffs in construction, trade, service and manufacturing industries.
The Labor Department estimated figures for Alaska and Puerto Rico during the Feb. 12 week.
Leading Indicator Inch Up
The index of leading economic indicators barely increased in January but the small rise followed two much larger gains, according to data released Thursday.
The leading index increased 0.1% last month, after a revised 0.8% gain in December, first reported as 1.0%, the Conference Board said. The index advanced 1.1% in November.
Economists surveyed by Dow Jones Newswires had expected a gain of 0.3% in the January index.
"The economy gained some momentum in late fall, and the latest data suggest that trend will continue," says Ken Goldstein, economist at the board.
In January, six of the 10 leading indicators increased. The most positive indicators were interest rate spread and supplier deliveries.
The coincident index was up 0.1% in January on top of a revised 0.3% gain in December, originally reported as 0.2%.
The lagging index fell 0.1% after rising a revised 0.2%, first reported as a gain of 0.3%.
Kathleen Madigan contributed to this article.
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