Gasoline prices jumped 0.9 percent in January, pushing overall consumer prices up and offering a reminder of the risks energy costs pose to the economic recovery.
The 0.2 percent increase in the Consumer Price Index reported by the Labor Department on Friday shows inflation remains largely under control, but a reading of underlying price pressures could reinforce caution at the Federal Reserve as it mulls further measures to help the economy.
The gain in gasoline prices, which followed three straight months of declines, reflected tensions in the Middle East that have pushed oil prices higher.
That has translated in to extra costs at the pump for Americans, leaving them less money to spend on other things.
After rising throughout January, the national price for regular unleaded gasoline prices rose to $3.58 a gallon in the week through Monday, according to the Energy Information Administration. It had started the year around $3.32 a gallon.
The Labor Department report showed so-called core prices, which strip out food and energy costs, rose 0.2 percent, which was in line with expectations.
However, it also showed core prices have risen an unexpectedly steep 2.3 percent over the past 12 months.
While the year-on-year reading on overall prices has been easing, the steady pick-up in core suggests inflation pressures are not subsiding as quickly as expected.
The Fed will likely be cautious in calibrating any response to the softening headline inflation outlook, said Millan Mulraine, an economist at TD Securities.
Graphic on January U.S. CPI: http://link.reuters.com/xyr66s
At the close of its January meeting, the Fed said it would likely keep interest rates at rock-bottom levels until at least late 2014. Fed Chairman Ben Bernanke expressed caution about recent improvements in the economy and left the door open to further Fed bond buying to boost growth.
Recent jobs and factory data have eased worries economic growth could slow sharply in the current quarter.
A gauge of future U.S. economic activity rose to a 3-1/2 year high in January on solid gains in manufacturing, the Conference Board said on Friday, pointing to steady economic momentum.
U.S. stocks were little changed in early trading, with investors reluctant to continue buying a day after the S&P posted its best daily gain in two weeks. Treasury debt prices edged down and the euro rose against the dollar on hopes Greece was nearing a deal to secure a new rescue package.
Overall consumer prices rose 2.9 percent year-on-year after increasing 3.0 percent in December. That was in line with economists' expectations.
Moderating the monthly gain in core prices, used car and truck prices fell 1.0 percent and new vehicle prices were flat.
Also, despite the spike in gasoline prices, overall energy prices rose just 0.2 percent because electricity prices were flat and costs to consumers for piped natural gas services fell 2.9 percent.
(Editing by Andrea Ricci)