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Consumer Prices Increase Fuels Inflation Fears

After adjusting for inflation, average weekly wages for production and non-managerial workers fell o.4 percent last month, and dropped 0.8 percent during the 12 months that ended in February, the department said. Those employees account for about 80 percent of the labor force.

Some economists warn that rising energy prices may cause the economy to slow suddenly this spring, just as it did last summer -- which might restrain inflation by making it harder for businesses to pass their costs on to consumers.

_____On the Web_____
Consumer Price Index Summary
_____In Today's Post_____
Fed Again Increases Key Rate By 0.25% (The Washington Post, Mar 23, 2005)

"With household savings rates already at their lowest levels since 1933 and debt levels at record highs, today's wage data implies a slowing, perhaps sharply, in consumer spending growth in the months ahead," said C.W. McMillion, chief economist with MBG Information Services, a Washington advisory firm.

The economy has been growing rapidly so far this year, at about a 4.5 percent annual rate according to some estimates, fueled by strong consumer spending and business investment.

Interest rates, particularly those for home mortgages, have remained generally low even though the Fed has raised its short-term interest rate steadily since June. Mortgage rates, for example remain below their levels of last summer, which has continued to fuel a booming housing market.

The Fed raised its benchmark federal funds rate, the overnight rate on loans between banks, to 2.75 percent from 2.5 percent yesterday, and it indicated that more increases lie ahead.

Fed officials noted in a statement issued after their meeting that inflation pressures had picked up and more businesses were raising prices -- a signal that they stand ready to raise the funds rate faster if necessary to keep those pressures from fueling higher consumer prices overall.

Those pressures primarily include rising energy costs.

Climbing energy prices accounted "for virtually all the acceleration in the overall" CPI last month, the Labor Department said in a news release.

However, prices also rose for housing, medical care, education, telephone service and new cars and trucks, the department said.

The increases were partially offset by falling prices for electricity, apparel, televisions, personal computers, software and Internet services.


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