Hurricanes Katrina and Rita helped make energy prices soar in September at the fastest rate on record, contributing to the highest monthly consumer price inflation in 25 years, the government reported Friday.
The inflation spike means payments to millions of Americans receiving Social Security and other federal benefits will rise next year by the largest amount since 1991, because of automatic cost-of-living adjustments.
However, average wages for most workers have risen more slowly than prices over the past 12 months, leaving workers with less spending power than a year earlier.
Energy prices have eased a bit this month and other prices show no sign of breaking out of control, analysts said. The worst monthly inflation increase in a generation does not signal a return to the economic turbulence of the 1970s and early '80s, with double-digit inflation and interest rates. Global competition and a vigilant Federal Reserve should prevent that, they said.
But consumers will probably have to live with higher prices and rising interest rates for months to come. That mixture, at a time when household debt is high and savings are low, is already slowing economic growth, several analysts said.
Consumer prices rose 1.2 percent last month and 4.7 percent in the 12 months that ended in September, according to the Labor Department's consumer price index. That was the biggest monthly advance since March 1980, and the steepest annual rise since May 1991.
The CPI increase primarily reflected energy prices, which rose 12 percent last month -- the biggest monthly increase since the government began collecting such data in 1957.
Energy prices have been rising for more than two years as the global demand for oil has grown and supplies have remained tight. Prices spiked in September after the Gulf Coast hurricanes shut down and disabled oil rigs, refineries and pipelines. Much of the lost production has been restored. Meanwhile, the government warned last week that high natural gas prices will push household heating bills up this winter.
The federal government automatically adjusts many benefit payments to help recipients keep up with inflation. For example, Social Security payments to more than 50 million retired and disabled workers will rise 4.1 percent in January. For senior citizens enrolled in Medicare, part of their increase will be consumed by rising health insurance premiums, which are deducted from Social Security checks.
Millions of recipients of other federal benefits -- including military, Foreign Service and civilian federal retirees -- also will receive a cost-of-living adjustment, known as a COLA, in their monthly checks.
The annual COLA is one of the foundations of the Washington-area economy. More than 327,000 civil service retirees and spouses of deceased retirees and more than 174,400 military retirees live in the District, Maryland and Virginia. Nationwide, there are about 2.4 million civil service retirees and about 1.9 million military retirees.