Consumer prices rose by 0.3% last month, the Labor Department said today, the biggest monthly increase since a 0.7% rise in July. Higher energy costs fueled the climb, and most economists and the government believe the recession will keep prices in check this year. That's because inflation has been flat over the past year, the lowest reading in more than a half-century.
Even with the January increase, which was in line with economists' expectations, inflation for the 12 months ending in January was zero. That's the lowest reading since prices actually fell by 0.4% for a 12-month period ending in August 1955. While falling prices appeal to consumers, the Federal Reserve is on alert about the possibility of deflation, which can make a recession even worse by dragging down Americans' wages, and clobbering already-stricken home and stock prices.