Saturday, October 15, 2005

And So It Begins



Inflation In Sept. Highest Since '80
Federal Benefits To Rise Up to 4.1%

By Nell Henderson
Washington Post Staff Writer
Saturday, October 15, 2005; Page A01

Hurricanes Katrina and Rita helped make energy prices soar in September at the fastest rate on record, contributing to the highest monthly consumer price inflation in 25 years, the government reported yesterday.

The inflation spike means payments to millions of Americans receiving Social Security and other federal benefits will rise next year by the largest amount since 1991, because of automatic cost-of-living adjustments.

However, average wages for most workers have risen more slowly than prices over the past 12 months, leaving workers with less spending power than a year earlier.

Energy prices have eased a bit this month and other prices show no sign of breaking out of control, analysts said. The worst monthly inflation increase in a generation does not signal a return to the economic turbulence of the 1970s and early '80s, with double-digit inflation and interest rates. Global competition and a vigilant Federal Reserve should prevent that, they said.

But consumers will probably have to live with higher prices and rising interest rates for months to come. That mixture, at a time when household debt is high and savings are low, is already slowing economic growth, several analysts said.


"I don't think these high energy prices are going away anytime soon,"
said Richard A. Yamarone, director of economic research at Argus Research Corp. That leaves households with less money to spend on other things, when many non-energy companies are trying to raise their prices, he said. "Consumers are pulling back."

Consumer prices rose 1.2 percent last month and 4.7 percent in the 12 months that ended in September, according to the Labor Department's consumer price index. That was the biggest monthly advance since March 1980, and the steepest annual rise since May 1991.

The CPI increase primarily reflected energy prices, which rose 12 percent last month -- the biggest monthly increase since the government began collecting such data in 1957.

Energy prices have been rising for more than two years as the global demand for oil has grown and supplies have remained tight. Prices spiked in September after the Gulf Coast hurricanes shut down and disabled oil rigs, refineries and pipelines. Much of the lost production has been restored. Meanwhile, the government warned last week that high natural gas prices will push household heating bills up this winter.

No comments: