WASHINGTON (MarketWatch) -- With energy prices tumbling 20%, U.S. consumer prices were unchanged over the past 12 months, the lowest inflation rate since 1955, the Labor Department reported Friday.

In January, the consumer price index rose a seasonally adjusted 0.3%, as expected by economists surveyed by MarketWatch. It was, the government said, the first increase since July.

Energy prices rose 1.7% last month, also the first increase since July.

The core CPI -- the measure of retail-level inflation that strips out food and energy prices to get a better handle on underlying inflationary trends -- increased 0.2% on a seasonally adjusted basis, higher than the 0.1% gain expected by economists for January. It's the largest gain in the CPI since August. See Economic Calendar.

Over the past 12 months, the core CPI is up 1.7%, the lowest rate seen for core inflation since mid-2004. Read the full report.

Most economists believe the annualized CPI rate will go negative in February even if energy prices continue to inch higher. The global recession is forcing producers to slash prices in the face of falling demand for many commodities.

"We expect to see the headline CPI fall close to 2% on average this year," said Nigel Gault, chief U.S. economist for IHS Global Insight.

"Disinflation pressure is still intense and will stay that way for some time," wrote Ian Shepherdson, chief domestic economist for High Frequency Economics.

Some economists are beginning to worry about deflation -- a general decline in prices and wages. Even the Federal Reserve has signaled that deflation is now a greater immediate threat than inflation, although the U.S. central bank's policy makers recognize the risks of inflation bubbling up again in a few years if they do not slow down the growth of money supply. See related story.

Other economists said fears of deflation are overblown.

There's not "even a sliver of evidence" that shelter prices are falling, which would be required to get to deflation, said Stephen Stanley, chief economist for RBS Greenwich Capital.

As long as the economy avoids the abyss of depression, "we believe that core inflation will accelerate as activity normalizes," he said.

Details of the CPI

With prices rising 0.3% for urban workers and average hourly earnings also up 0.3%, weekly earnings fell 0.1% in January on an inflation-adjusted, or real, basis.

Real weekly earnings are up 3.4% in the past year. Over that time, 3.6 million jobs have been lost, many of them in low-paying occupations such as temp-help and retail.

In January, housing prices were unchanged, with large declines in hotel rates and household fuel bills offsetting modest increases in rent and homeownership costs. Housing costs, which represent 43% of the CPI, have fallen 0.2% over the past six months but were up 2.2% in the past year.

Food prices rose 0.1% in January, putting the annualized rate of increase at 5.3%. Prices of food purchased to consume at home fell 0.1% last month.

Energy prices rose 1.7%, including a 6% increase in gasoline prices, while natural-gas and fuel-oil prices dropped. Energy prices are down 20.4% in the past year.

Although they rose 0.3% for January, apparel prices are down 0.9% in the past year.

Transportation prices increased 1.3% on the recent move higher in gasoline prices. Prices for new car prices rose 0.3%, while air fares fell 2.1%.

January's medical-care prices rose 0.4%, the biggest gain in a year.

Tobacco prices increased 0.8% on the month.