Energy prices surged in February
By Jeannine Aversa
Associated Press
WASHINGTON — Prewar jitters stoked energy costs, causing consumer prices in February to register their biggest increase in two years.
With most other prices well-behaved, however, economists predicted inflation won't turn into a problem for the struggling economy.
The Labor Department reported yesterday that the Consumer Price Index, the government's most closely watched inflation gauge, shot up by 0.6 percent in February — twice as fast as January's rise.
Most of February's jump came from energy, whose costs soared before the United States went to war against Iraq. The war having begun, crude-oil prices are retreating.
Excluding increases in energy and food prices, the core rate of inflation inched up just 0.1 percent for a second straight month. That suggested that most other prices are under control, and the nation's inflation picture looks good.
"Most analysts looking at the CPI report ... will conclude that the war against inflation has been won and go back to monitoring the news about the war in Iraq," said Stephen Cecchetti, economics professor at Ohio State University.
Still, higher energy prices have encouraged consumers to become tightfisted, slowing the economy's recovery, economists said.
With consumers paying more to fill up their tanks and heat their homes, they have less to spend on other things. Consumers also have turned cautious amid worries about the war, a stagnant job market and a turbulent stock market. Consumer spending is a prime force keeping the economy going.
Higher energy prices and uncertainties surrounding the Iraq situation are the biggest factors restraining economic activity, Federal Reserve Chairman Alan Greenspan and his colleagues said earlier this week.
As those negative forces lift, the economy should do better, the Fed policy-makers said in deciding Tuesday to hold interest rates at 1.25 percent, a 41-year low.
Despite February's sharp rise in energy costs, many private economists predict that if the war with Iraq is over quickly, with minimum damage to oil fields, energy prices should retreat quickly, just as they did after the first Persian Gulf War in early 1991.
Crude oil prices already have been easing in the past week.
"When it comes to oil, the fear of war drove up prices, and the actual war seems to be unwinding the gains," said Joel Naroff, president of Naroff Economic Advisors.
In February, before war broke out, all energy prices jumped by 5.9 percent, up from a 4 percent increase in January, the CPI report showed. Home heating oil prices soared 15.8 percent in February, and natural gas prices increased 5.5 percent. Gasoline prices went up 9.9 percent, the biggest increase since June 2000.
Food prices shot up 0.7 percent in February, a reversal from a 0.2 percent decline registered in January. The rise in food prices last month was the sharpest since June 1996.
The increase was led by a steep rise in the price of beef and veal, which went up by 3.3 percent in February, the biggest one-month increase in 19 years. Beef supplies have thinned as struggling ranchers reduced herds, a reason behind the price spike, economists said.
