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WASHINGTON — Consumer prices shot up in June at the second fastest pace in 26 years with two-thirds of the surge blamed on soaring energy prices.
The Labor Department reported that consumer prices jumped 1.1 percent last month, much worse than had been expected. Energy prices rocketed upward by 6.6 percent, reflecting big gains for gasoline, home heating oil and natural gas.
The big rise in prices cut deeply into consumers' earning power with average weekly wages, after adjusting for inflation, falling by 0.9 percent. It was the biggest monthly decline since a 1.1 percent drop in weekly wages in September 2005.
The 1.1 percent June price increase was the second largest monthly advance in the past 26 years, surpassed only by a 1.3 percent gain in September 2005 from a jolt to energy costs after Hurricane Katrina.
Separately, the Federal Reserve reported that industrial output rose 0.5 percent in June, the fastest pace in 11 months. The increase, the highest since a 0.6 percent gain in July of last year, reflected an end to an automotive production strike rather than any widespread strength in the economy.
The report on retail inflation followed similarly grim news on Tuesday that wholesale prices had shot up by 1.8 percent in June.
Wall Street turned higher on Wednesday as a second day of falling oil prices helped to offset the concerns about the jump in inflation last month. The Dow Jones industrial average was up more than 125 points in late morning trading.
Even with the two-day slide in the price of oil, a barrel of crude is about 80 percent higher than it was a year ago and 40 percent higher than at the start of the year. As recently as Friday, crude oil traded at record levels above $147 a barrel.
Federal Reserve Chairman Ben Bernanke, wrapping up two days of congressional testimony, repeated his concerns about inflation in remarks to the House Financial Services Committee on Wednesday. He said that the upside risks to the inflation outlook have intensified, reflecting higher prices for oil and other commodities.
Bernanke's comments underscored the bind the central bank is in, caught between a faltering economy that is struggling to overcome a prolonged housing slump and a severe credit squeeze, and the risk that inflation will move higher.
Democrats in Congress said the new inflation report emphasized the need to pass a second stimulus package because the Fed's room to boost growth through further cuts in interest rates was being limited by higher inflation pressures.
"We're now seeing danger for the economy on both sides — growth is too slow and inflation is too high," Sen. Charles Schumer, D-N.Y., said in a statement. He urged the Bush administration to work with Congress to "pass some mainstream, bipartisan solutions for our economy."
The White House sought to signal continued concern about the economy's weakness but didn't indicate any change in the administration's opposition to a second stimulus package.
"The President is very concerned about the impact high prices are having on Americans, especially those who are on lower incomes. What the president would reiterate is what he said yesterday ... that the health of the overall economy is dependent on inflation remaining low," presidential press secretary Dana Perino told reporters.
Many analysts believe that the central bank is likely to leave interest rates unchanged for the rest of the year out of concern that any tightening of credit policy could send the economy into an even worse tailspin.
Over the past 12 months, consumer inflation is up by 5 percent, the largest year-over-year gain since a similar 5 percent rise in May 1991.
Food prices also showed a big increase in June, rising by 0.7 percent, more than double the 0.3 percent increase of May. Vegetable prices shot up by 6.1 percent, the biggest increase in nearly four years.
Core inflation, which excludes energy and food, showed rising pressures too, with an increase of 0.3 percent in June, up from a 0.2 percent gain in May and the biggest one-month rise since January.
This increase reflected a 4.5 percent jump in airline ticket prices, the biggest one-month rise for airline fares since June 2001.
© 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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{"commentId":2167035,"authorDomain":"gbreadman"}
The U.S. has no right to dictate to China how to control their currency. After all, The US adjusts their interest rate levels with government controls, and has no desire to raise them at the present time, so why should China raise their currency values.
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#1 - Fri Jul 11, 2008 12:18 PM EDT{"commentId":2167190,"authorDomain":"jamesabush"}
America is handicapped by its tax structure. Most other countries use value-added taxes (VATs) to raise much of their revenue. This tax is levied at each stage of production and is figured as a percentage of the value added by that stage. VATs tax the value added by automated processes that involve few employees as well as processes that employ many.
Therefore, VATs are different from our FICA tax (Social Security/Medicare tax) which taxes only workers and their employers. The FICA tax encourages employers to replace employees with automation. VATs don't.
International trade rules allow forgiveness of VATs when goods are exported. These rules do NOT allow forgiveness of FICA taxes, income taxes, or property taxes that are paid by American companies who sell their wares in international markets. That is a big reason why goods produced in other countries can be sold here or in world markets at lower prices than those of their American competitors. American goods are loaded with taxes, Lee Iacocca used to say.
The international trade rules --the General Agreement on Tariffs and Trade (GATT) -- were adopted in the end of World War II, when the US was pretty much calling the shots. They have become part of the rules of the World Trade Organization (WTO), which our government has pushed.
The QUESTION is: What is it about US that we put ourselves at a significant disadvantage by not following the rules that were written under our influence? Will our next President and our next Congress be addressing this?
{"commentId":2167190,"threadId":"311077","contentId":"1654133","authorDomain":"jamesabush"}
#2 - Fri Jul 11, 2008 12:40 PM EDT{"commentId":2206139,"authorDomain":"kerwynw"}
You gotta love W's press conference yesterday where he continues to insist that the economy is strong one day after G.M. suffered huge losses and said that it would have to shut down plants and lay off workers. The numbers don't lie W we are in a major recession and consumer confidence is way down and the Coup de Grace 80 percent of Americans think that the country is going in the wrong direction i.e. a downward spiral.
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#3 - Wed Jul 16, 2008 1:52 PM EDT{"canLink":false,"threadId":"311077","isPrivate":false}
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