The U.S. consumer price index climbed 0.3% in January, quelling any fears that inflation is on the rise south of the border.

The lighter than expected result is welcome after a much stronger than expected producer price inflation reported Thursday. Consumer core prices were up just 0.1%.

The annual headline rate of 2.6% continues to grind upwards despite modest monthly gains, says BMO Nesbitt Burns. “Conversely, the year-over-year trend in core CPI has been slowing for over a year now — it currently stands at 1.9% compared with 2.6% a year ago.”

Nesbitt says that the headline rate was driven primarily by energy prices. And, vehicle prices, which surged in the PPI, fell in the CPI. “This sometimes happens, depending on the type of incentives used, but it surprised us on this occasion. Apparel prices continued to plunge. Prices for clothing and autos are both down about 2% from a year ago. More interesting was the moderation in medical care costs, which increased only 0.1%,” it says.

“The only real uncertainty in the CPI forecast is just how long and how violent the energy price will be,” says CIBC World Markets. “That makes guessing the headline CPI figure just that, a guess, with a lot of political variables underlying the result. But the core CPI story is much easier to tell: a slack U.S. economy and ample excess capacity around the world will leave core prices close to 2% inflation or less — leaving the door open for the Fed to cut rates if the economy fails to see its hoped-for acceleration.”

“Because core inflation remains widespread but well behaved, this report confirms that the U.S. Federal Reserve faces no near-term pressures to change rates,” offers RBC. “We think the first change will only come with a half point rise in the fourth quarter of this year. Also, because modest consumer price increases are still coming through, talk of how deflation has gripped the U.S. economy is way off-base, particularly alongside yesterday’s evidence of the sharpest monthly rise in producer prices since January 1990 after two previous months of small declines.”

“We regard the PPI as a leading indicator and CPI as lagging a bit,” cautions Nesbitt. “So, we remain focused on all the signs of firming prices. However, the markets are in a mood to believe inflation is not a problem and this report reinforced that view. We hope it does not turn out to be a major headfake.”