Inflation jumps, reflecting food, energy costs
WASHINGTON – Inflation at the wholesale level soared in February, pushed higher by gasoline and other energy prices and the largest increase in food costs in more than three years.The Labor Department reported that wholesale prices surged 1.3 percent last month. That was the biggest increase since November and more than double the 0.5 percent gain analysts expected.Cost pressures also showed up in higher prices for cigarettes, alcoholic beverages, appliances and children’s toys and games, which rose at the fastest clip in more than two decades.The core inflation rate, which excludes food and energy, climbed by 0.4 percent, more than forecast and double the January gain.The worrisome inflation news comes as the economy struggles to deal with the impact of a steep slump in housing and widespread layoffs in autos and other manufacturing industries.Normally, the Federal Reserve would consider cutting interest rates to bolster a faltering economy. But analysts said the increased inflationary pressures make rate cuts highly unlikely when the central bank meets Tuesday and Wednesday”There is still a degree of inflation in the economy and that supports the Fed’s policy of not easing in response to the softer economic data we have been seeing,” said Robert Dederick, chief economist at RGD Economics, a Chicago-based consulting firm.A separate report showed that the labor market seems to be regaining its balance. The number of laid-off workers filing for unemployment benefits dropped by 12,000 last week to 318,000.It was the second straight weekly decline and eased concerns that arose after big increases in jobless claims earlier in the year.On Wall Street, stocks managed a moderate advance, bolstered by signs of strength in corporate takeover activity. The Dow Jones industrial averaged finished the day up 26.28 points at 12,159.68.For the financial markets, it has been a turbulent time since late February. Concern has grown about companies that specialize in loans to people with weak credit or low incomes; the worry is that trouble among these subprime lenders could drag down the economy.The 1.3 percent jump in wholesale prices followed a 0.6 percent decline in January and was the biggest increase since a 1.5 percent surge in November.The February increase factored in a 3.5 percent spike in energy costs as the price of gasoline, home heating oil and natural gas shot up.Wholesale gasoline prices were 5.3 percent higher in February; more increases are expected as the spring driving season gets under way. The latest Lundberg Survey found that the nationwide average for regular gasoline has risen 20 cents in the past two weeks to $2.55 per gallon.Food costs jumped 1.9 percent in February, the third straight month of sizable increases. The February advance reflected harsh winter weather that sent the price of such crops as celery, strawberries and oranges soaring.The cost of toys and games rose by 2.3 percent, the biggest increase since February 1983. Cigarette prices rose by 4.6 percent and light trucks, the category that covers sport utility vehicles, were up 1.7 percent.When the Fed meets next week, the expectation is that the central bank will leave interest rates unchanged and continue to cite inflation as a greater threat than slow economic growth.The Fed last changed interest rates in June 2006 when it pushed the federal funds rate to its current level of 5.25 percent. That capped a two-year credit tightening campaign designed to slow the economy enough to relieve rising inflationary pressures.February’s big price jump meant wholesale inflation had risen by 2.5 percent over the past 12 months. It was the fastest pace since a 3.8 percent increase for the 12 months ending last August, a period when energy prices were surging.—On the Net:Wholesale inflation: http://www.bls.gov/ppiJobless claims: http://www.ows.doleta.gov
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