Archive for Thursday, May 18, 2006

Economic concerns rapidly inflating

May 18, 2006


— Consumer prices vaulted higher in April, fueling concerns the Federal Reserve might keep pushing interest rates up to fend off inflation, and discouraged Wall Street investors sent stocks tumbling.

Soaring prices for gasoline and other energy products have played a major role in the spikes seen over the past two months. And the price tags of lots of other goods and services also are climbing.

The closely watched Consumer Price Index rose 0.6 percent, the biggest jump in three months, the Labor Department said Wednesday. That followed an already strong 0.4 percent advance in March.

"The whiff of inflation is feeling more like a gust," observed Richard Yamarone, economist at Argus Research. "The inflation picture is worsening."

On Wall Street, stocks plunged. The Dow Jones industrials plummeted 214.28 points to close at 11,205.61 in the biggest single-session loss in three years.

Excluding energy and food prices, "core" prices went up 0.3 percent in April for the second month in a row. The sizable back-to-back increases suggested that rising energy costs may be starting to breed wider inflation throughout the economy.

Stuart Hoffman, chief economist at PNC Financial Services Group, described the inflation performance as "rotten to the core." He and other economists said it indicates that more companies are passing along some of their higher costs for energy and other materials to consumers.

So far this year, consumer prices are rising at an annual rate of 5.1 percent, much faster than the 3.4 percent increase registered for all of 2005. Core prices are advancing at a brisk 3 percent pace, compared with a more moderate 2.2 percent rise for last year.

To thwart inflation, the Federal Reserve bumped up interest rates last week to a five-year high of 5 percent. It was the 16th increase in a row since the Fed began to tighten credit in June 2004.

A growing number of economists said Wednesday's inflation report raises the odds for another rate increase at the Fed's next meeting, June 28-29. "I conclude that higher interest rates are in our future," said Brandeis University economics professor Stephen Cecchetti.


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