Analysts think now there is no worry for deflation in the near future.
“There was some downward pressure exerted by the housing and auto components that probably won't persist into the next few months. So I don't see those prices declining on a sustained basis,” said Chris Lafakis, an economist with Economy.com.
Fed feels inflation won’t be a problem
The inflation data comes after Federal Reserve’s announcement of increasing its emergency lending rate to banks. This is the first time that the government has raised rates since 2007 financial crisis.
Wells Fargo Chief Economist John Silva said “With the war against the Great Recession over, our newly reappointed head of the Federal Reserve now seeks to take us back to normalcy in the financial markets. Let's trust that he too ushers in a decade of prosperity.”
The Fed also said it does not think inflation will be a problem this year.
“When people are out of work and don't have as much money to spend as they used to, there's less demand for goods, which keeps inflation down,” said Federal Reserve.
Federal Reserve Bank of New York President William Dudley said the world economy is recovering.
“We currently expect that the economy will keep expanding but at a somewhat slower growth rate than during the second half of 2009,” he said. “With modest growth, we expect price pressures to remain well contained.”
CPI for January
Friday’s news also showed the consumer price index (CPI) at 0.3 percent, falling by 0.1 percent. This is the first decrease in the index since 1982.
“The rise in [wholesale prices], if sustained, will either result in an eventual rise in consumer prices or a squeeze in company margins,” said Peter Boockvar, equity strategist at Miller Tabak.
Steven Ricchiuto, chief economist for Mizuho Securities, said that even though core wholesale prices rose 0.3 percent, it is only 1 percent increase since last January.
However, January 2010 saw high energy costs increasing by 2.8 percent, while food costs increased by 0.2 percent.
The CPI is the broadest of the price gauges released by the Labor Department as it includes goods and services.
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