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US inflation soars at 26-year high on energy prices
2008-07-16
WASHINGTON (AFP) - Soaring energy costs drove US consumer prices up 1.1 percent in June to an annual pace of 5.0 percent, data showed Wednesday, prompting a central bank warning and rising stagflation concerns. The monthly advance in the Labor Department's consumer price index (CPI) was the sharpest since June 1982, while a 0.3 percent rise in core CPI excluding energy and food was the strongest since January. The surprisingly stiff momentum in consumer prices exceeded analysts' consensus forecasts of a gain of 0.7 percent in headline inflation and a 0.2 percent rise in core inflation. In May, headline inflation was up 0.6 percent from April and the core rate increased 0.2 percent. On a 12-month basis, CPI was up 5.0 percent in June, the hottest annual inflation level since May 1991. Core CPI was 2.4 percent higher than in June 2007, the strongest rate since March. The report underscored Federal Reserve concerns about rising inflation and sluggish growth -- the noxious combination of stagflation -- as the economy battles fierce headwinds from financial turmoil and the worst housing crisis in decades. "Inflation is currently too high," Fed chairman Ben Bernanke said in a second day of testimony to Congress, speaking after the CPI data release. "And it's a top priority of the Federal Reserve to run a policy that's going to bring inflation to an acceptable level consistent with price stability as we go forward," he told the House of Representatives in his second day of semiannual testimony to Congress. Bernanke, however, emphasized that "the enormous jumps in oil prices and other commodity prices are to some extent at least due to real factors out of the control of the Federal Reserve." "It's the global supply and demand conditions which are affecting those particular things to the most significant extent," he added, a day after delivering a grim report to the Senate. The Fed chief's remarks indicated the central bank, which has slashed its key interest rate to 2.0 percent in recent months, would be hard-pressed to loosen monetary policy in the face of accelerating inflation. "Inflation is the bind that ties the Fed and it is quite tight right now," said Joel Naroff of Naroff Economic Advisors. Bank of America economist Peter Kretzmer said that in light of Bernanke's testimony Tuesday indicating both downside risks to the economy and upside risks to inflation, "this morning's extreme spike in headline inflation and unfavorable core reading are particularly unwelcome." "The CPI report underlines the current stagflation, and points to the variety of difficulties faced by the Fed," he added. Kenneth Beauchemin, US economist at Global Insight, said the inflation trend combined with the current growth outlook signals the Fed "will take a pass on rate hikes until 2009. Indeed, the remote chance for financial disaster in the coming months keeps a rate cut on the table." The Labor Department said that energy prices accounted "for around two-thirds" of the rise in overall inflation in the world's biggest energy consumer. Energy prices advanced a whopping 6.6 percent in June, following a 4.4 percent increase in May. Gasoline prices rose a searing 10.1 percent, accounting for slightly more than half of the total advance in CPI in June, and were 32.8 percent higher than in June 2007. Food prices climbed 0.8 percent, after rising 0.3 percent in May. Prices for food at home surged 1.0 percent after a 0.3 percent rise in May. Consumers faced a 2.8 percent jump in fruit and vegetable prices, which had held basically steady in May. Excluding energy and food, significant price increases were seen in several sectors. Transportation prices rose 3.8 percent, driven in part by a 4.5 percent rise in airfares, the steepest increase since March 2000. Unadjusted for seasonal factors, airline fares rose 6.7 percent last month, 18.7 percent higher than a year ago, the department noted. Amid the price gains, the Labor Department reported weekly salaries fell an inflation-adjusted 0.9 percent in June, the steepest decline since August 1984.
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