U.S. Consumer Prices Rise Less Than Expected (WMT)

Consumer prices in the U.S. rose less than expected in January, and prices excluding food and energy actually fell.

The Labor Department in a report released Friday said that the consumer price index rose 0.2 percent for the fifth month running. Stripping out the volatile food, and fuel prices, the closely watched core measure of consumer index fell 0.1 percent in January, the first fall since December 1982.

Core prices rose 0.1 percent in December 2009. Economists had projected the consumer index to rise 0.3%, while the core index was forecast to rise 0.1%. Retailers such as Wal-Mart Stores, Inc. (NYSE: WMT) have reduced prices to lure customers in an economic climate where companies are increasingly reluctant to pass on its costs to consumers.

The benign inflation figures give the Federal Reserve more time to stay on the sidelines. The decreased inflationary pressures should also help ease the fears in the financial markets, which were triggered with Fed's announcement on Thursday that it would increase its lending rates from quarter to 0.75%.

This is the rate the Fed charges banks for very short term emergency loans. Despite the Fed announcing that it should not be seen a technical correction, sentiments in markets were muddied the world over. William Dudley, President of the Federal Reserve Bank of New York, said that the US economy was recovering with better-than-expected growth and fewer job losses and that the modest growth should also keep the prices in check.

On the energy front, costs jumped 2.8 percent in January, led by oil, and gasoline. Crude oil on the New York Mercantile Exchange came to an average of $78.40 last month, up from $74.60 in December. Average gasoline prices increased 4.4 percent last month; the highest monthly spike since August last year.

Food costs, which constitute around 15 percent of the CPI, increased 0.2 percent in January, reflecting the increase in dairy products, meat and fruits and vegetables.

Shelter costs including rental properties fell 0.5 percent, while new car prices fell 0.5 percent in January, the most since August. Airline fares plunged by 2.5 percent in January, the most since February 2009, and apparel costs dropped 0.1 percent.

The Consumer Price Index also showed some price increases in scattered areas. Price of medical care rose by 0.5 per cent, the biggest monthly gain in two years, while the cost of tobacco products increased 0.4 per cent, the biggest increase since November.

Wal-Mart, the world’s largest retailer, reported fourth-quarter sales yesterday that trailed its projection after cutting grocery and electronic prices. The company has also reduced the cost of laptop computers and edibles in an effort to attract customers.