Washington Consumer inflation rose 0.5 percent in September, the biggest increase since June, as energy costs sharply rebounded and retailers boosted prices of their fall clothing lines by the largest amount in a decade, the Labor Department reported Wednesday.
The worse-than-expected jump in the Labor Department's Consumer Price Index jolted Wall Street and sent stocks plunging at the opening bell as investors worried that the Federal Reserve would have to resume raising interest rates to fight inflation.
"The inflation genie is not completely out of the bottle, but those that believe that pricing power is completely dead just may have to reassess their position," said economist Joel Naroff, head of a Holland, Pa., forecasting firm.
The big price jump in September was led by higher energy and clothing costs, but it reflected widespread increases in everything from tobacco and restaurant meals to medical care and housing costs.
Many economists argued that September's spike was triggered by special factors that should not be repeated in coming months.
"Absent these volatile factors, nothing has changed," said Bill Cheney, chief economist at John Hancock Financial Services in Boston. "The stock market may be turbulent, but the economy still seems on course for a soft landing."
In a second report, the Commerce Department said housing construction edged up 0.3 percent in September to a seasonally adjusted annual rate of 1.53 million units after a decline of 0.1 percent in August.
The weakness in both months was viewed as further evidence that the economy slowed considerably in the July-September quarter from its breakneck pace of the spring.
The 0.5 percent CPI increase in September followed a 0.1 percent decline in August, the first drop in 14 years. However, both months were heavily influenced by swings in energy costs.