Consumer prices in October posted their biggest increase in five months, straining budgets at the gas pump and the grocery store.
The latest picture of the nation’s pricing climate showed that inflation is picking up now that the economy has emerged from a slow spell. That is bolstering the case for the Federal Reserve Board to bump up short-term interest rates for a fifth time this year when policy-makers meet Dec. 14.
The government’s most closely watched inflation gauge, the Consumer Price Index, rose 0.6 percent in October, compared with a 0.2 percent rise in September, the Labor Department said yesterday. Costlier energy and food were the main culprits behind last month’s acceleration.
“Consumers have to shell out quite a bit more to cover those costs,” said Carl Tannenbaum, chief economist at LaSalle Bank.
Gasoline prices for the month soared 8.6 percent, the biggest increase in more than a year. Fresh fruit prices rose by 6.3 percent, the most in more than 20 years.
Excluding volatile energy and food prices, core prices increased by a more modest 0.2 percent in October, following a 0.3 percent rise the previous month.
Other economic news added to the case for another rate increase by the Fed:
Industrial production shot up 0.7 percent in October, after a 0.1 percent increase in September, the Federal Reserve reported.
Housing construction jumped 6.4 percent last month to a seasonally adjusted annual rate of 2.03 million units — the highest level of this year, the Commerce Department said.
Fed Chairman Alan Green-span and his colleagues began their campaign in June to raise interest rates, intending to prevent inflation from becoming a threat to the economy. Thus far, the Fed has ordered four rate increases, each one-quarter of a percentage point. After the most recent increase, last week, an important interest rate was at 2 percent.
Analysts said that, inflation, while certainly a concern, does not pose a serious danger to the economy now.
Fed policy-makers, in a statement after their meeting last week, said “inflation and longer-term inflation expectations remain well-contained.” They also said the economy appears to be growing “at a moderate pace despite the rise in energy prices.”
From a consumer’s point of view, rising inflation can strain the family budget. After adjusting for inflation, weekly earnings of nonsupervisory workers dropped 0.4 percent in October, compared with a 0.3 percent rise in September, the Labor Department said.
The CPI report came one day after the government released data showing wholesale costs soared in October by 1.7 percent, the biggest increase in more than 14 years.
With the economy expanding, some companies are finding it easier to raise prices, analysts said. A weaker dollar also is putting pressure on prices of imported goods, which gives American companies more room to raise prices.
Still, economists expect that both wholesale and consumer prices for November will look better. Experts cite a moderation in crude oil costs and an expectation that food costs will settle down.
In the first 10 months of 2004, consumer prices rose at an annual rate of 3.9 percent, compared with a 1.9 percent increase for all of 2003. That pickup has been led by higher energy costs.
Energy prices in October jumped 4.2 percent, compared with a 0.4 percent drop in September. Gasoline prices last month surged 8.6 percent and fuel oil costs went up 9.4 percent. Both increases were the largest since February 2003. Natural gas prices increased by 0.6 percent.