Consumer prices rose less than expected in January, while prices excluding food and energy fell for the first time since 1982, supporting the Federal Reserve's contention it would keep its benchmark interest rate low for an extended period.
The Labor Department said on Friday its seasonally adjusted Consumer Price Index rose 0.2 percent last month, lifted by a spike in energy costs, after rising 0.2 percent in December.
Analysts polled by Reuters had forecast consumer prices rising 0.3 percent in January. Compared to January last year, prices rose 2.6 percent, also below market expectations for a 2.8 percent increase.
The report came day after the U.S. central bank raised the interest rate it charges banks for emergency loans by 25 basis points to 0.75 percent, citing improvement in financial market conditions. It, however, maintained its pledge to keep overnight interbank lending rates at ultra low levels.
Quarterly forecasts released by the Fed on Wednesday showed policymakers expect inflation to remain muted through 2012.
U.S. stock index futures pared losses on the report, while Treasury debt prices added gains. The U.S. dollar trimmed gains versus the yen.
U.S. consumer prices came out tame during the month of January and that alleviates worries of higher inflation that we saw from yesterday's wholesale-level inflation report, said Joe Manimbo, currency trade at Travelex Global Business Payments in Washington.
So that type of data reinforces the outlook for low U.S. interest rates for the foreseeable future, he said.
A surprise surge in prices paid at the farm and factory gate last month, owing to higher gasoline costs, had fanned fears that inflation pressures could soon weigh on the economy, which is recovering from the most brutal recession in 70 years.
Consumer energy costs soared 2.8 percent last month after rising 0.8 percent in December. Food prices climbed 0.2 percent following a 0.1 percent gain in December.
Stripping out volatile energy and food prices, the closely watched core measure of consumer inflation fell 0.1 percent in January, the first decline since December 1982. Core prices rose 0.1 percent the prior month.
Analysts had expected core prices to rise 0.1 percent. Core prices were pulled down by declining costs for new vehicles, shelter and airline fares. High vacancy rates are keeping rentals depressed.
Compared to January last year, the core inflation rate rose 1.6 percent after increasing 1.8 percent in December.
(Reporting by Lucia Mutikani; Additional reporting by Wanfeng Zhou in New York, Editing by Andrea Ricci)