Archive for Thursday, July 17, 2008

Economy’s newest jolt prompts talk of new stimulus package

July 17, 2008

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— The price of a quart of milk, a plane ticket and a host of other products rose in June at nearly the fastest pace in a generation, taking an even bigger-than-expected bite out of the buying power of Americans.

In the latest shock wave to hit the economy, consumer prices rose 1.1 percent in June from the month before, far faster than the expected rate of 0.7 percent and almost double the reading from May, the Labor Department said Wednesday.

The only time in the past quarter-century that monthly inflation has been that high was in September 2005, when prices jumped 1.3 percent, mostly because Hurricane Katrina shut down oil refineries and energy prices spiked.

Consumer prices are up 5 percent over the last 12 months, the fastest one-year change since 1991.

As prices rose last month, take-home pay took a hit. Adjusting for inflation, weekly wages fell 0.9 percent in June, the third straight monthly decline and the biggest drop in almost four years.

The news was the back half of a one-two punch on inflation. On Tuesday, the Labor Department reported that prices at the wholesale level were rising by the highest annual rate in 27 years.

In Congress, Democrats seized on the inflation report to push a second economic stimulus package because the inflation risk is crimping the Fed's room to cut interest rates farther.

White House press secretary Dana Perino said President Bush was "very concerned about the impact high prices are having on Americans, especially those who are on lower incomes."

But the administration did not signal any increased willingness to consider another stimulus package beyond the $168 billion measure that is delivering payments to 130 million households.

Before Congress, Federal Reserve Chairman Ben Bernanke wrapped up two days of testimony and repeated his concerns about inflation, also noting the housing slump, financial turmoil and credit troubles.

"We will work our way through these financial storms," he said.

The Consumer Price Index, which came out Wednesday, measures not just what Americans pay for goods but for other purchases, including services like health care and haircuts.

Higher energy costs led the way, with a more than 10 percent rise in gasoline prices. More expensive vegetables, dairy and beef pushed up food costs.

Core inflation, the figure that excludes energy and food to measure other costs, rose by 0.3 percent in June, the fastest rise since January

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