By CHRISTOPHER S. RUGABER, Associated Press
WASHINGTON (AP) — Consumer prices rose modestly in January on higher costs for food, gas, rent and clothing.
But economists downplayed the increase, saying inflation will likely 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 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.
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."
Separately, 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 unemployment rate fell to 8.3 percent, the lowest in nearly three years, after employers added 243,000 net jobs — the most in nine months. Auto sales are up, unemployment aid applications are down, and factories are cranking out goods at a healthy pace.
The Fed is forecasting that inflation will remain in check this year. It expects that the inflation gauge it follows will increase by about 1.6 percent in 2012. That's below the Fed's target for inflation of 2 percent.
Low inflation was one of the reasons the Fed last month said it plans to hold its benchmark interest rate at a record low near zero until late 2014.
If inflation were to rise rapidly, the Fed would come under pressure to increase rates.
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.
Oil and gas prices have increased again after dropping late last year, though that has been offset somewhat by falling natural gas costs. The average price for a gallon of gas rose to $3.53 on Friday, up 15 cents from the previous month.
Falling energy and food costs kept wholesale prices in check last month, the Labor Department said Thursday. The producer price index rose 0.1 percent in January, after dropping the same amount the previous month.
Wholesale gas costs rose, but that was more than offset by steep drops in natural gas, home heating oil and electricity prices.
Core wholesale prices jumped 0.4 percent because of higher pharmaceutical, pickup truck and tobacco costs.
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