- The Washington Times - Saturday, April 13, 2002

Sharply higher gasoline costs drove up wholesale prices in March by the largest amount in 14 months. Shoppers, hit by more expensive energy bills, spent modestly on other things.
The reports released yesterday suggest the economy is hitting some rough patches on the road from recession to recovery.
Though many economists believe that the surge in energy prices is temporary and note that oil prices have retreated from recent highs, the run-up helped make consumers less willing to splurge. It also put the squeeze on fragile companies, whose deep cuts in capital spending were a key reason the country fell into recession.
"If the economic recovery were a runner, I would say it is starting to jog but is not ready for a sprint," said Tim O'Neill, chief economist at Bank of Montreal.
Mr. O'Neill didn't view yesterday's reports as a sign the economy was backsliding. "I don't think there's anything to suggest the economy is becoming unglued or that it is getting stuck again," he said.
The 1 percent jump in the Labor Department's Producer Price Index, which measures inflation pressures before they reach consumers, came after a 0.2 percent increase in February and largely reflected a sharp increase in energy prices, especially gasoline.
But excluding volatile energy and food prices, the "core" rate of wholesale inflation nudged up just 0.1 percent in March after being flat the previous month. That suggests that most other prices are remaining steady.
For the 12 months ending in March, wholesale prices actually fell 1.4 percent.
Sales at the nation's retailers, meanwhile, rose a modest 0.2 percent in March for the second month in a row, the Commerce Department said.
While the increase was smaller than analysts expected, it shows that consumers whose spending accounts for two-thirds of all economic activity in the United States are shopping and aren't clamping their pocketbooks and wallets shut.
Consumers bought electronics and appliances, building and garden supplies, and sporting goods. They spent more on gasoline. But they cut back spending on cars, home furnishings and clothes, and ate out less often.
"The consumer is still buying, but the pace is moderate, not exuberant," said Joel Naroff of Naroff Economic Advisors.
After being tame for months, energy prices rose sharply in March. The 5.5 percent increase was the largest monthly jump since June 2000. Even so, prices are down 13.5 percent from a year ago.
Tensions in the Middle East and the recent escalation of violence in the region have contributed to the rise, but prices are easing. Still, if there's a potential wild card in the United States' economic recovery, it's the fear of an increase in energy costs.
A dramatic jump in prices could slow or derail the recovery. A worst-case scenario is that out-of-control energy prices would cause consumers to lose confidence and retrench, send corporate profits tumbling, and snuff out a comeback from the manufacturing sector.
President Bush, who wants to get credit for steering the country out of its first recession in a decade, has been closely monitoring the situation.
"The energy-price situation has recently been a significant risk overhanging both the inflation and general economic performance. But it would appear that risk should start to subside in the next several weeks," said Lynn Reaser, chief economist at Banc of America Capital Management.

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