The Labor Department reports on January consumer prices Thursday at 8:30 a.m. Eastern.
PRICES PLUMMET ON CHEAPER GAS: Economists forecast the consumer price index fell 0.6 percent in January, according to a survey by data firm FactSet. That would be the third straight drop, after declines of 0.3 percent in December and November.
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Cheaper gas is mostly responsible for pushing the monthly changes into negative territory. Excluding the volatile energy and food categories, economists expect core prices to edge up a slight 0.1 percent in January.
Last year, consumer prices increased just 0.7 percent, the smallest gain since 2008, when they were flat. Core prices rose 1.6 percent in 2014. That's only slightly below the previous year's increase of 1.7 percent.
The Federal Reserve's preferred measure of inflation, excluding food and energy, rose just 1.3 percent last year. That is below its target rate of 2 percent, which the Fed has chosen because it provides a cushion against deflation.
Very low inflation is complicating the Fed's decision on when to begin raising the short-term interest rate it controls. Many analysts expect the Fed could raise rates in June or September.
Federal Reserve Chair Janet Yellen expects the impact of falling gas prices to fade in the coming months, pushing inflation back toward its 2 percent target. Indeed, there are signs oil and gas prices have leveled off after collapsing nearly 60 percent from last July though January.
DEFLATION THREAT: Because of the gas price drop, the annual change in consumer prices may have fallen below zero last month, some economists estimate. That could raise fears that the U.S. economy is entering a deflationary spiral.
Deflation, which occurs when prices are falling, may seem like a good thing to consumers but can be bad for an economy. Declining prices can lead consumers to put of spending as they wait for better deals. That slows growth and forces companies to cut wages. Japan has struggled to escape a deflationary, slow-growth trap for more than two decades.
Yet Ethan Harris, global economist at Bank of America Merrill Lynch, says that price declines driven by cheaper gas typically don't cause deflationary spirals. Instead, lower gas prices free up more cash for Americans to spend. That boosts economic growth.
Gas prices fell to an average of $2.03 a gallon nationwide in January, the lowest level in five years, according to AAA. Yet they reached $2.33 on Wednesday, up six cents in just a week. Oil prices topped $50 a barrel Wednesday, up from a low of $44 in January.
Other factors are pushing up core prices, particularly rents. The vacancy rate for rental apartments fell to 7 percent at the end of last year, the lowest in 25 years, according to Joseph Carson, U.S. economist for asset manager AllianceBernstein. That pushed up average rents last year 3.4 percent, the biggest gain in six years. That is acting as a counter to falling gas prices, Carson said, and keeping core inflation from falling much lower.