washingtonpost.com  > Business > Special Reports > U.S. Economy
Page 2 of 2  < Back  

High Energy Costs Ratchet Up Inflation

The consumer price index, the Labor Department's widely followed measure of inflation, rose 0.4 percent last month, up from a 0.1 percent increase in January, primarily because of a 2 percent gain in energy prices.

The CPI rose 3 percent over the 12 months that ended in February, driven in part by a 10.4 percent increase in energy prices.

Faith Lysogorski, Planterra Corp. floral design assistant, fills a company GMC Savana fuel tank in Farmington Hills, Mich. (Paul Sancya -- AP)

_____Message Boards_____
Post Your Comments

Meanwhile, oil and gasoline prices have jumped since last month. Prices for U.S. benchmark crude scheduled for May delivery topped $57 a barrel in trading last week, and closed yesterday at $53.81 on the New York Mercantile Exchange. That's up from about $46 a barrel in early February.

The national average price of regular gasoline was $2.11 yesterday, up from $1.89 a month ago, according to the AAA auto club.

Because energy and food prices swing widely from month to month, economists often look at measures that exclude those items to get a sense of underlying, or "core," inflation. Higher energy prices are unlikely to fuel higher overall inflation unless they "seep" into core prices -- that is, for example, if a trucker tacks a fuel surcharge onto a delivery of shirts and the retailer in turn raises the price of the shirts.

The core CPI rose 0.3 percent last month, the fastest rate in five months, and was up 2.4 percent over the past year, the highest rate since August 2002. That reflected, in part, airlines raising fares to cover higher jet fuel prices and rents rising because of higher utility bills.

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.

Rising energy prices have left many consumers with less money to spend on other items.

After adjusting for inflation, average weekly wages for production and non-managerial workers fell 0.4 percent last month, and dropped 0.8 percent over 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 even if the Fed does not jack up rates suddenly, rising energy prices may cause the economy to slow abruptly this spring, just as it did last summer -- which would likely restrain inflation by making it harder for businesses to pass their costs on to consumers.

In addition to energy prices, another reason for rising inflation pressures is that 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.

One reason for such spending is that interest rates, particularly those for home mortgages, have remained generally low even as the Fed has raised its short-term interest rate steadily since June. Mortgage rates, for example, remain below their levels of last summer, continuing to fuel a strong housing market and rapid appreciation in home prices in many markets.

Sales of existing homes -- including previously owned houses, townhouses and condominium units -- slipped 0.4 percent last month but remained near the record high levels reached last year, the National Association of Realtors said yesterday.

Other sources of inflationary pressures include the higher costs for metals, cement and other materials, rising import prices and rising employee benefit costs. However, Fed Chairman Alan Greenspan has frequently noted that the fat profit margins of recent years will enable many companies to absorb much of such cost increases rather than risk losing business by passing them on to consumers.

< Back  1 2

© 2005 The Washington Post Company