Prices Are Surging – And It's Not Just Gasoline

WASHINGTON – Americans got hit with an economic double whammy last month. They had to pay more for gasoline, clothes, airline tickets and a lot of other products. And their wages did not keep up with inflation.

It was the second month in a row that wages, after adjusting for inflation, had fallen.

"Wages aren't keeping up with the higher prices for gasoline, health care and even clothing," said Sen. Jack Reed, D-R.I.

President Bush, pressing Congress to pass his long-stalled energy plan, said the measure would boost exploration for new domestic supplies. But he acknowledged it would not come in time to help motorists facing the prospect of gasoline staying above $2 per gallon during the summer driving season.

"I wish I could simply wave a magic wand and lower gas prices tomorrow," he told a Washington audience.

Politicians from both parties were scrambling to deal with the two new economic reports Wednesday that contained bad news for families.

The Labor Department reported that its closely watched Consumer Price Index showed prices rising by 0.6 percent in March, the biggest advance since last October, as the cost of gasoline and other energy products shot up.

And even more worrisome, prices outside of the volatile energy and food categories, rose by 0.4 percent, double what analysts had expected, and the highest increase for so-called core inflation in 2½ years.

While inflation was rising, the Labor Department said in a separate report that the average weekly earnings of nonsupervisory workers, after adjusting for inflation, fell by 0.3 in March after having dropped by the same amount in February. Real weekly earnings had risen by 0.2 percent in both January and December.

Underscoring that inflation pressures are mounting, the Federal Reserve said Wednesday in its latest survey of business conditions in the Fed's 12 regions that "price pressures have intensified in a number of districts and most report that high or rising energy prices are a concern across sectors."

The higher consumer prices and the Fed's report on rising inflation pressures led to another triple-digit loss on Wall Street. The Dow Jones industrial average fell 115.05 points to close at 10,012.36, the lowest close since October.

The Labor Department reported that gasoline prices climbed 7.9 percent last month, the biggest increase since an 8 percent surge in October.

Both times, the increases were driven by soaring global oil prices – a record $55 per barrel in October, a new high of $57 per barrel at the beginning of this month.

While crude oil prices have retreated recently, gasoline prices are expected to remain above $2 per gallon through the summer driving season.

So far this year, inflation at the consumer level is rising at an annual rate of 4.3 percent, compared with a 3.3 percent increase for all of 2004.

Excluding food and energy, core inflation is rising at an annual rate of 3.3 percent in the first three months of this year, significantly higher than the 2.5 percent increase in 2004.

The Fed gradually has raised interest rates over the past year as a hedge against inflation. Analysts said the central bank could find itself in the difficult position of choosing between fighting slower growth by cutting interest rates, or higher inflation, which would require rate increases.

The Fed's latest survey of regional conditions said that economic growth was continuing from late February through early April but that the growth ranged from "robust" to "moderate" to "uneven."

"The Fed is caught," said David Wyss, chief economist at Standard & Poor's in New York. "The Fed would like to keep interest rates low to keep the economy moving, but on the other hand they have to fight against inflation."

Wyss and other analysts said the Fed probably would continue to raise rates by one quarter of a percentage point at its upcoming meetings, though a one-half point jump could happen if energy-driven inflation worsened.

"Energy prices are the key wild card for the economy," said Mark Zandi, chief economist at Economy.com.

For March, energy costs shot up 4 percent, the biggest one-month gain since a similar rise in October. Prices for gasoline, home heating oil and natural gas all increased.

Food costs rose by 0.2 percent in March, following a gain of 0.1 percent in February. Prices for pork and fresh fruit fell.

Clothing costs, which had declined, jumped 0.8 percent in March, the biggest one-month gain in 12 months. Hotel room prices rose a record 3.9 percent.

Some analysts suggested that both increases were one-month aberrations that reflected the government's inability to adjust for the impact of an early Easter, which was in March this year.

Airline ticket prices rose by 2.7 percent, the largest increase in nearly four years, reflecting efforts to deal with surging fuel costs. Health care costs were up 0.5 percent in March after an increase of 0.6 percent in February.

The U.S. economy is about to stumble. 'Nuff said.

Want to take a Poll on Oil Prices?

I have a Cost of Living Allowance as part of my package at work. Problem is that the Treasury Dept has a bass ackwards way of calculating inflation so when it says 0.6% price increase it is only for their "basket of goods." Everyone knows that fuel costs alone have gone up 10-20% in the past year or so, but thats not reflected in the inflation stats, and thus I don't get a pay bump up.
Shady, just like the way they calculate unemployment.

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