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Consumer Inflation At Bay

Consumer inflation rose 0.2 percent in January, lifted by the largest increase in gasoline prices in four months and higher prices for fruits and vegetables, the government reported Wednesday.

The modest advance in the Labor Department's Consumer Price Index, a closely watched inflation gauge, came after consumer prices dipped by 0.1 percent in December.

One of the few benefits from the recession flowing to consumers is low inflation, which provides shoppers with plenty of bargains.

Excluding energy and food prices, which can swing widely from month to month, the "core" rate of inflation increased 0.2 percent in January, up slightly from a 0.1 percent advance the month before.

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The latest reading on inflation at the consumer level was in line with many analysts' expectations and suggest that inflation is fairly well contained.

"That's pretty much what things have been running at, stable inflation at low rates," said David Wyss, chief economist of Standard and Poor's in New York, adding that there was no reason for the Federal Reserve to be worried.

To revive the economy, the Fed slashed interest rates 11 times last year. The Fed could act so aggressively because inflation hasn't posed a risk to the economy.

For the 12 months ending in January, consumer prices rose by just 1.1 percent, the smallest increase since the 12 months ending December 1986.

Last month the Fed opted to leave interest rates unchanged and cited signs of a recovery as the reason.

Many economists believe the Fed's rate cuts will pave the way for solid economic growth in the second half of this year. In the meantime, analysts expect companies will continue to find it difficult to raise prices, which should keep inflation in check in the coming months.

In January, overall energy prices advanced 0.9 percent, after falling sharpl in each of the prior three months. Gasoline prices went up 2.7 percent last month, the biggest increase since September.

Gasoline prices — while still considered moderate — were lifted by a firming of crude-oil prices last month, reflecting production cuts by oil-producing nations.

In a separate economic development, the government reported on Tuesday that construction of new homes and apartments rose 6.3 percent in January to the highest level in almost two years, fresh evidence that the housing market is thriving while much of the economy slumps.

The Commerce Department said builders broke ground last month on a bigger-than-expected 1.68 million units, at a seasonally adjusted annual rate. That was the highest level since February 2000 and followed a 2.3 percent decline in December.

Low interest rate are a key reason that the housing and construction markets have remained stable even as the national economy has been suffering through a recession that began in March.

While the stock market has been volatile during the slump, housing values have seen solid appreciation, another factor motivating new-home buyers, builders say.

In January, construction of new single-family homes rose 3.5 percent to a rate of 1.35 million. That followed a 4.4 percent advance in December. Builders started work on 287,000 units, at a seasonally adjusted rate, of apartments, condos and other multifamily housing in January, an 8.3 percent increase from the previous month. In December, construction of multifamily housing fell by a sharp 20.4 percent.

By region, new housing construction rose by 8.7 percent in the Northeast to a rate of 162,000 in January. In the South, housing construction went up by 14.4 percent to a rate of 800,000. But in the West, housing construction fell by 3.6 percent to rate of 377,000; in the Midwest, it dipped by 0.3 percent to a rate of 339,000.

© MMI, CBS Worldwide Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press and Reuters Limited contributed to this report

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