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The Honolulu Advertiser
Posted on: Thursday, April 20, 2006

Core inflation rate jumps

By Martin Crutsinger
Associated Press

Lee Staaf watched the gauge in dismay Tuesday as he gassed up his sport utility vehicle in Revere, Mass. A big jump in gasoline prices pushed March inflation at the wholesale level up at the fastest pace in three months. Crude oil is selling for more than $70 a barrel.

CHARLES KRUPA | Associated Press

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WASHINGTON — Consumer prices rose sharply in March, reflecting higher costs for everything from gasoline to clothes and hotel rooms. Perhaps most troubling, core inflation, which does not include energy and food, rose at the fastest pace in a year.

The Labor Department reported yesterday that its Consumer Price Index rose by 0.4 percent last month, up steeply from the modest 0.1 percent gain in February. The extra price pressures were led by a big jump in gasoline prices.

With oil prices climbing to record levels above $70 per barrel this week, analysts said motorists should brace for more pain at the pump.

Excluding energy and food, core inflation rose by 0.3 percent in March, the biggest gain since a similar increase in March 2005. This acceleration reflected higher prices paid by renters, the biggest jump in clothing costs in seven years and a large increase in airline ticket prices.

Analysts said the increase in core inflation was worrisome because it was so widespread and could be an indication that the relentless rise in energy costs was beginning to spill over into other areas.

"This was not a good report," said Joel Naroff, chief economist for Naroff Economic Advisors, "especially if you are a member" of the Federal Reserve committee that meets eight times a year to set interest rates. The next meeting is May 10.

Yesterday's inflation report suggested rising price pressures could cause the Fed to go further in lifting rates than just the quarter-point rate hike that is expected in May, analysts said.