News Column

Costlier Gas Pushes Consumer Prices Up

January 16, 2014

Associated Press

The Labor Department reports on changes in the consumer price index in December. The report will be released at 8:30 a.m. Eastern time Thursday.

MODEST GAIN: Economists forecast that consumer prices increased 0.3 percent last month, according to a survey by FactSet, after no change in November. Excluding volatile costs for food and energy, core prices are expected to have increased just 0.1 percent, after a 0.2 percent gain in November.

GAS PRICES RISE: Last month's expected increase in gas prices comes after sharp declines in October and November. But the increase probably won't fully reverse a steady decline over the past year, which lowered costs at the pump 5.8 percent in November compared with a year earlier.

Gas prices have continued to increase this month and averaged $3.31 a gallon nationwide on Wednesday, according to AAA. That's 8 cents higher than a month earlier.

But outside the volatile energy and food categories, inflation likely stayed mild. It has been held back by sluggish growth and high unemployment, which makes it harder for retailers and other businesses to raise prices.

Inflation has been low and falling for the past two years. Prices rose just 1.2 percent in November from a year earlier, down from a 1.8 percent annual pace in November 2012 and a 3.4 percent annual pace two years ago.

FED CONCERNS: Persistently low inflation has allowed the Federal Reserve to pursue its extraordinary stimulus program. The Fed launched an $85 billion-a-month bond purchase program in September 2012 in an effort to keep interest rates low and spur more borrowing and spending. Fed policymakers cut those purchases to $75 billion this month.

Fed policymakers could continue their purchases for longer if inflation doesn't move closer to their 2 percent target. Fed officials have said ultra-low inflation poses economic risks. Among other concerns, it makes inflation-adjusted interest rates higher, potentially discouraging borrowing. The Fed meets again at the end of this month.

Critics of the bond-buying program fear it will spark higher inflation in the future. But the inflation has yet to materialize.

A small amount of inflation can be good for the economy, because it encourages consumers and businesses to spend and invest before prices rise further. But if prices barely rise, consumers have little incentive to spend and may wait to see if goods get even cheaper.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Original headline: US consumer prices likely rose on costlier gas

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Source: Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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