Consumer prices up as gas, clothing costs rise

Associated Press file photo by AMY SANCETTAA customer fills a gas can at a Marathon station in Middlefield., Ohio, on Feb. 10. U.S. retail gasoline prices are rising, but that has been offset by lower costs from natural gas to help hold overall inflation.

WASHINGTON — Consumer prices rose modestly in January on higher costs for food, gas, rent and clothing.

But economists downplayed the increase, saying inflation likely will ease in the coming months as prices for raw materials level off.

Separately, a gauge of future economic activity rose in January for the fourth straight month, adding to evidence that the economy has strengthened in the new year. The Conference Board said its index of leading economic indicators rose 0.4 percent last month to its highest point since July 2008. The steady rise has coincided with other positive data that suggest the recovery is picking up.

The consumer price index increased 0.2 percent last month, after a flat reading in December, the Labor Department said Friday.

Excluding volatile food and energy, so-called “core” prices ticked up 0.2 percent. A big reason for the increase was that clothing prices jumped 0.9 percent. Medical care, rent and tobacco prices also increased.

Car prices were unchanged, and airfares fell.

Core inflation over the past 12 months moved up to 2.3 percent — its highest point in more than three years. A steady rise in core prices could limit the Federal Reserve’s ability to take steps to boost the economy.

Still, economists said inflation is likely leveling off.

For example, clothing prices are higher because of a spike last year in the cost of cotton. When the impact of the cotton hike fades, clothing costs should ease.

Oil and gas prices have increased again after dropping late last year, though that has been offset somewhat by falling natural gas costs.

Guy LeBas, fixed income strategist at Janney Montgomery Scott, said the rise in the core reflected a delayed response to those soaring commodity prices.

The report “points to a benign path for inflation for 2012,” LeBas said. “Consumer demand is fairly anemic right now ... firms can’t raise prices when nobody’s buying.”

A small amount of inflation can be good for the economy. It encourages businesses and consumers to spend and invest money sooner rather than later, before inflation erodes its value.

And tame inflation, combined with recent increases in income, gives consumers more buying power and should add to economic growth.

Retailers are still reluctant to charge more, even as the economy grows at a moderate pace.

Many relied on heavy discounting to boost holiday sales last year.