WASHINGTON (Reuters) - U.S. consumer prices were unchanged for a third straight month in January, leading to the smallest annual increase in inflation in more than 1-1/2 years, which could allow the Federal Reserve to hold interest rates steady for a while.

A Shell gas station is shown in Encinitas, California January 25, 2016. REUTERS/Mike Blake

The Labor Department’s report on Wednesday supported the Fed’s recent description of price pressures being “muted.” In a policy statement last month, the U.S. central bank kept rates unchanged, pledged to be “patient” before tightening monetary policy further and discarded promises of “further gradual increases” in borrowing costs.

“Inflation still appears to be well in check,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan. “That should be enough for the Fed to take time to evaluate the gradual effects of its prior rate hikes and move more slowly and thoughtfully in administering rate policy in the months ahead.”

The Consumer Price Index last month was held down by cheaper gasoline, which offset increases in the cost of food, rent, healthcare, recreation, apparel, motor vehicles and household furnishings. In the 12 months through January, the CPI rose 1.6 percent, the smallest gain since June 2017. The CPI increased 1.9 percent on a year-on-year basis in December.

Excluding the volatile food and energy components, the CPI gained 0.2 percent, rising by the same margin for a fifth straight month. In the 12 months through January, the so-called core CPI rose 2.2 percent for a third straight month.

Economists polled by Reuters had forecast the CPI edging up 0.1 percent in January and the core CPI rising 0.2 percent.

While the steady increases in core inflation resulted in the biggest three-month annualized gain in 10 months, economists said they did not believe it signaled a material shift in underlying inflation trends.

“The Fed will be focused more on longer time frames,” said Eric Winograd, senior economist at AllianceBernstein in New York. “The quarter-on-quarter annualized figure has moved both higher and lower without signaling any meaningful change in the year-on-year rate before.”

The dollar rose against a basket of currencies as traders focused on the three-month rise in the core CPI. Prices of U.S. Treasuries fell. Stocks on Wall Street were trading higher amid optimism that the United States and China could strike a deal during trade talks in Beijing.

LITTLE UPSIDE RISK

Despite the increases in the core CPI, underlying inflation remains moderate. The Fed, which has a 2 percent inflation target, tracks a different measure, the core personal consumption expenditures (PCE) price index, for monetary policy.

The core PCE price index increased 1.9 percent on a year-on-year basis in November after rising 1.8 percent in October. It hit 2 percent in March 2018 for the first time since April 2012. PCE price data for December will be released on March 1.

It was delayed by a five-week partial shutdown of the federal government that ended on Jan. 25.

Inflation is remaining moderate despite a tightening labor market, in part because of slowing economic growth in China and Europe, which is helping to lower oil prices.

“We don’t see a ton of upside risk to inflation over the next several months,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “The unemployment rate could fall even further without stoking significant inflation, since the slope of the Phillips curve remains flat.”

The Phillips curve describes the relationship between inflation and unemployment. It holds that as unemployment declines, inflation should rise. In the current environment, the lack of a strong inflation impulse suggests there is no danger of the labor market overheating.

In January, gasoline prices fell 5.5 percent after dropping 5.8 percent in December. Food prices increased 0.2 percent, rising for a third straight month. There were increases in the prices of poultry, eggs, fish and beef. But consumers paid less for fruits, vegetables, cereals and dairy products.

Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, increased 0.3 percent in January after gaining 0.2 percent in the prior month. The cost of postage stamps jumped 1.7 percent, the most since February 2013.

Healthcare costs rose 0.2 percent after advancing 0.3 percent in December, with doctor visits costing more. Apparel prices surged 1.1 percent last month, the biggest increase since February 2018.

Airline fares dropped 0.9 percent. The cost of motor vehicle insurance fell for a third straight month.