Consumer prices surge 1.1%, worse than feared Rising
energy prices sent inflation surging more than expected in June The
Associated Press updated
1:49 p.m.
ET, Wed.,
July. 16, 2008 The
Labor Department reported that consumer prices jumped 1.1 percent last
month, much worse than had been expected. Energy
prices rocketed upward by 6.6 percent, reflecting big gains for
gasoline, home heating oil and natural gas. The
big rise in prices cut deeply into consumers’ earning power with
average weekly wages, after adjusting for inflation, falling by 0.9
percent. It was the biggest monthly decline since a 1.1 percent drop in
weekly wages in September 2005. The
1.1 percent June price increase was the second largest monthly advance
in the past 26 years, surpassed only by a 1.3 percent gain in September
2005 from a jolt to energy costs after Hurricane Katrina. Separately,
the Federal Reserve reported that industrial output rose 0.5 percent in
June, the fastest pace in 11 months. The increase, the highest since a
0.6 percent gain in July of last year, reflected an end to an automotive
production strike rather than any widespread strength in the economy. The
report on retail inflation followed similarly grim news on Tuesday that
wholesale prices had shot up by 1.8 percent in June. Wall
Street turned higher on Wednesday as a second day of falling oil prices
helped to offset the concerns about the jump in inflation last month.
The Dow Jones industrial average was up more than 125 points in late
morning trading. Even
with the two-day slide in the price of oil, a barrel of crude is about
80 percent higher than it was a year ago and 40 percent higher than at
the start of the year. As
recently as Friday, crude oil traded at record levels above $147 a
barrel. Federal
Reserve Chairman Ben Bernanke, wrapping up two days of congressional
testimony, repeated his concerns about inflation in remarks to the House
Financial Services Committee on Wednesday. He said that the upside risks
to the inflation outlook have intensified, reflecting higher prices for
oil and other commodities. Bernanke’s
comments underscored the bind the central bank is in, caught between a
faltering economy that is struggling to overcome a prolonged housing
slump and a severe credit squeeze, and the risk that inflation will move
higher. Democrats
in Congress said the new inflation report emphasized the need to pass a
second stimulus package because the Fed’s room to boost growth through
further cuts in interest rates was being limited by higher inflation
pressures. “We’re
now seeing danger for the economy on both sides — growth is too slow
and inflation is too high,” Sen. Charles Schumer, D-N.Y., said in a
statement. He urged the Bush administration to work with Congress to
“pass some mainstream, bipartisan solutions for our economy.” The
White House sought to signal continued concern about the economy’s
weakness but didn’t indicate any change in the administration’s
opposition to a second stimulus package. “The President is very concerned about the impact high prices are having on Americans, especially those who are on lower incomes. What the president would reiterate is what he said yesterday ... that the health of the overall economy is dependent on inflation remaining low,” presidential press secretary Dana Perino told reporters. Many
analysts believe that the central bank is likely to leave interest rates
unchanged for the rest of the year out of concern that any tightening of
credit policy could send the economy into an even worse tailspin. Over
the past 12 months, consumer inflation is up by 5 percent, the largest
year-over-year gain since a similar 5 percent rise in May 1991.
Food
prices also showed a big increase in June, rising by 0.7 percent, more
than double the 0.3 percent increase of May. Vegetable prices shot up by
6.1 percent, the biggest increase in nearly four years. Core
inflation, which excludes energy and food, showed rising pressures too,
with an increase of 0.3 percent in June, up from a 0.2 percent gain in
May and the biggest one-month rise since January. This
increase reflected a 4.5 percent jump in airline ticket prices, the
biggest one-month rise for airline fares since June 2001. ©
2008 The Associated Press. All rights reserved. This material may not be
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