While the U.S. Department of Labor reported Wednesday that inflation nationally jumped by a higher-than-expected 0.3 percent in January, in Utah the cost of living retreated 0.4 percent.

The reasons are a complicated mixture of Utah's relative economic isolation, a still strong housing market and cheaper, or at least stable, costs in several key economic categories measured in Wells Fargo's Wasatch Front Cost of Living report for January.

"We have an extraordinarily strong economy right now, compared with the nation," said Kelly Matthews, Wells Fargo executive vice president and economist.

But the performance of the housing market remains the biggest factor in the state's superior economic showing.

"One of the biggest things in whether this 'disconnect' holds true will be in terms of real home prices," he said, noting that although residential construction continues strong, housing costs in Utah remained flat last month, compared with a 0.6 percent leap nationally.

While home prices nationally probably will decline as the year progresses, Matthews said prices in Utah should at the least retain their values.

"Prices have risen at a 15-19 percent rate during the last few years, so we need to get a flatter situation . . . if we are going to rectify the affordability problem," he said. "But I am very hopeful that we won't be seeing home prices actually decline."

As the construction industry goes, so goes Koch Mechanical Contractors. And Felipe Ontiveros, vice president for business development for the West Valley company, said things are booming.

"Business is going well. We're as busy as we were last year, even a little more," he said, saying the strong residential and commercial construction sector is keeping his 75 employees hopping.

Transportation costs along the Wasatch Front - riding a six-month retreat in gas prices - dipped 2.0 percent, four times better than the country as a whole.

Tammy Reid, manager of the Chevron gas station at 504 S. West Temple St. in Salt Lake City, said that's great news for her and her customers.

"Our business has been steady, and you don't get near the hassle of people yelling at you when prices are up," she said. "People are definitely excited to seem them staying down."

The nation saw increases of 1.0 percent and 1.2 percent, respectively, for health care and groceries, while transportation costs ticked down 0.5 percent. Utahns saw health care expenses go up just 0.6 percent, roughly half the national rate. Grocery prices, reversing the national trend, were down 0.4 percent.

Nationally, it was particularly the nation's 0.3 percent "core inflation" index - excluding the volatile energy and food components - that furrowed brows on Wall Street, where analysts had forecast a rise one-tenth of a percent lower. It was the largest one-month core inflation gain in seven months.

Spooked by the Labor Department's figures, investors drove the Dow Jones industrial average down 48.23 points by close of trading Wednesday.

Of more concern to Matthews, though, was the 2.7 percent year-over core inflation rate for the nation, up a tick from the December 2005-December 2006 rate. That "may be of increasing concern to the Federal Reserve, whose inflation target is 2.5 percent," he said.

"I'm hopeful the Fed will remain on hold [with interest rates] through the rest of the year. If we can keep core inflation under 3.0, we shouldn't really be worried."

bmims@sltrib.com