By Nell Henderson
Washington Post Staff Writer
Wednesday, April 18, 2007
Surging gasoline prices pushed inflation higher last month, the Labor Department reported yesterday, with the increases eating up workers' pay gains.
But other government data showed that, outside of fuel costs, prices did not rise much in March, while home construction appeared to stabilize and factories stepped up production.
The figures, combined with other economic data released recently, depict a U.S. economy that is holding up despite a slump in housing, several analysts said yesterday.
"We ended the quarter with the economy steadying itself and not spiraling down into a recession," said Stuart G. Hoffman, chief economist at PNC Financial Services. He estimated that the economy was growing at a moderate annual pace, 2 to 2.5 percent. "This is not an economy that is regaining momentum . . . nor is it losing momentum," he said.
Wall Street appeared to share that assessment. The Dow Jones industrial average and Standard & Poor's 500-stock index closed up modestly.
Consumers had reason to be grumpier. The Labor Department's consumer price index, a widely followed inflation measure, rose a seasonally adjusted 0.6 percent last month, the biggest increase since a similar jump in April last year. The index was 2.8 percent higher than a year earlier.
The March increase primarily reflected a 5.9 percent rise in fuel prices, including a 10.6 percent jump at gasoline pumps.
In the first three months this year, fuel prices rose at a 22.9 percent annual rate. In comparison, fuel costs rose 2.6 percent over all of 2006, with a steep rise early in the year followed by a tumble later.
Because of the fuel jolt, inflation outpaced wage growth last month. Average weekly earnings declined 0.1 percent in March, after adjusting for inflation, the Labor Department said.
Economists seek a sense of underlying inflation by looking at "core" inflation, which excludes food and energy prices. And the core consumer price index rose by only 0.1 percent last month, the slowest pace in three months.
The mild rise in core inflation largely reflected a sharp, 1 percent drop in clothing prices in March, combined with smaller price increases for food, housing and medical care.
"Yes, gasoline is certainly adding to the costs for us all, but so far it's not bleeding into other prices," Hoffman said. He said other recent figures show that economic growth remains on track.
Builders broke ground on 0.8 percent more homes in March than in the month before, the Commerce Department said yesterday. Analysts said that meager gain showed no rebound in the housing market but was still an improvement after many months of sharp declines. The number of housing starts was 26 percent lower than a year earlier.
Another encouraging sign was that permits for new construction, which are seen as a signal of future activity, rose 0.8 percent.
Manufacturing output rose 0.7 percent in March, as factories made more machinery, computers and home electronic equipment, the Federal Reserve reported yesterday.
Other recent figures showed a strong 0.7 percent increase in retail sales last month, as unemployment remained low at 4.4 percent.
"The economy is doing very well," said Richard Yamarone, director of economic research at Argus Research Corp. "The consumer really is resilient."
Other forecasters expect consumers to pull back on spending this spring because of rising gasoline prices, higher debt payments and falling home prices.
"People are being squeezed," said Nigel Gault, U.S. economist for Global Insight.
Meanwhile, inflation pressures remain strong, several analysts said. Economic growth overseas is pushing global prices higher for food, oil, metals and other commodities. The U.S. dollar has been falling, which makes imports more expensive. Rents are still rising. The effort by the U.S. government to encourage more production of ethanol, for use as an alternative fuel, has helped push up prices for corn, the major grain used in producing meat.
The average national price for a gallon of regular gasoline was $2.87 yesterday, up from $2.55 a month earlier, according to the AAA automobile club. Prices exceed $3 a gallon in parts of the Washington area.
Federal Reserve policymakers forecast inflation to drift lower this year because of slow economic growth. But they have stressed in recent weeks that they remain worried that price pressures may prove to be stubborn. They agreed at their meeting in March that they might have to raise interest rates to force inflation down, according to minutes of the session.
"We're far from out of the woods" on inflation, Yamarone said. "There is plenty to be concerned about."