- The Washington Times - Saturday, February 22, 2003

ASSOCIATED PRESS
Consumer prices rose by 0.3 percent in January, the biggest one-month increase in nine months, as gasoline and other energy prices shot skyward, reflecting worries in global oil markets over what war in Iraq would do to supplies.
The Labor Department said yesterday that the January increase in its Consumer Price Index, the most closely followed inflation gauge, was the biggest since a 0.4 percent advance last April. In November and December, prices edged up just 0.1 percent.
Virtually all the price pressure occurred in the energy sector. The costs of a variety of other items from clothing and food to new cars and airline tickets actually fell in January, underscoring that the weak U.S. recovery is making it hard for companies to charge more for their goods.
"With the economy stuck in first gear and demand very limited, inflation remains completely subdued," said Oscar Gonzalez, an economist at John Hancock Financial Services in Boston.
Mr. Gonzalez said that the CPI report should quiet fears raised by Thursday's report on wholesale prices showing that inflation at this level jumped by a sizable 1.6 percent, an increase that was also led by higher energy costs.
While price pressures at the wholesale level can get passed on to consumers, economists said they believed much of the PPI reading in January reflected statistical quirks and not any threatening buildup in prices outside of energy.
"Going forward, energy prices will be greatly influenced by how any war in Iraq unfolds," said David Wyss, chief economist at Standard & Poor's in New York.
The lack of overall inflation has allowed the Federal Reserve to keep interest rates at a 41-year low, spurring record sales of new and existing homes and providing support to the consumer sector, which has been the only strength exhibited so far in the uncertain recovery from the 2001 recession.
Yesterday, Fed board member Ben Bernanke said that the central bank would not consider raising interest rates until the economy was on a "clear footing."
Echoing comments made by Federal Reserve Chairman Alan Greenspan last week in congressional testimony, Mr. Bernanke said in a speech at St. Cloud University in Minnesota that it was very hard to judge the strength of the economy currently because uncertainty about a potential war in Iraq was keeping business spending decisions on hold.
The 0.3 percent rise in consumer prices last month was dominated by a 4 percent surge in energy prices, the biggest spurt in this area since last April.
Prices of gasoline at the pump jumped by 6.6 percent, the biggest increase since a 9 percent rise last April. So far in February, gasoline prices have continued to rise, with one nationwide survey putting the average currently at $1.66 per gallon, up 22 cents since the beginning of the year.
Analysts said while the February CPI will likely show another big increase in energy, those gains could quickly reverse if any U.S. invasion of Iraq goes well with the fighting over quickly without any serious damage to oil fields in the area.
Outside of gasoline, home heating oil costs were up 8.6 percent last month, the biggest increase since August 2000, while natural-gas prices increased by 4.6 percent, the largest increase in two years. Both gains will show up in higher heating bills for homeowners.
The 0.3 percent overall increase in the CPI in January, if it continued for an entire year, would translate into an annual inflation increase of 4 percent.
Most economists are forecasting that once war jitters are removed, oil prices and overall inflation will retreat and for the year prices should rise by around the same 2.4 percent increase recorded in 2002.
Food prices actually declined by 0.2 percent in January, the best showing in six years.
Outside of the volatile energy and food sectors, price pressures were well contained, rising by just 0.1 percent, even better than the 0.2 percent increase in the core inflation rate posted in December.
In this area, prices of new cars, which had shown a sharp increase in the wholesale price index, actually posted a decline of 0.9 percent in the CPI while airline fares declined by 0.6 percent.
Clothing costs, reflecting heavy discounting in January after poor holiday sales, fell by 0.9 percent in January, the fifth consecutive month of falling clothing prices.
Even medical care, an area that had been posting hefty increases, showed moderation in January, rising by just 0.1 percent, the smallest monthly increase since January 1998.


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