- The Washington Times - Wednesday, November 16, 2005


Consumer inflation, helped by a retreat in gasoline prices, slowed last month after racing ahead in September at the fastest clip in 25 years. But in a bad sign for the upcoming home heating season, natural gas prices rose sharply.

The Labor Department reported yesterday that consumer prices rose 0.2 percent in October after soaring 1.2 percent in September, when the Gulf Coast hurricanes caused gas prices to spike briefly above $3 per gallon.

The easing of overall inflation pressures reflected a decline in energy costs after a record 12 percent jump in September. Most of that downward pressure came from a 4.5 percent drop in gasoline prices.

However, natural gas, which is used to heat many homes, went the other way. It surged by 14 percent, the biggest monthly increase in nearly four years.

The government already is forecasting that natural gas users can expect to see their bills increase by 48 percent this winter’s heating season, or $350 extra for the typical household. People who use home heating oil will see a 32 percent increase, which also averages to $350 more.

Core inflation, which does not include the volatile food and energy areas, was up by 0.2 percent in October after five straight months of 0.1 percent increases. While the acceleration was slight, some analysts worried it might be the start of more widespread inflation pressures.

“There is beginning to be evidence that high energy prices are starting to spill over into the rest of the economy,” said Nariman Behravesh, chief economist at Global Insight, a Lexington, Mass., consulting firm.

As evidence of that, analysts noted airline fares were up 1.5 percent in October while hotel and motel rates jumped 3.5 percent and medical care costs rose by 0.5 percent, the fastest pace in seven months.

“Make no mistake about it. Inflation is building in the pipeline,” said Richard Yamarone, chief economist at Argus Research in New York. “It is no longer a matter of if, but when, those price pressures will start to affect the general price level.”

Analysts concerned about inflation predicted that rising prices will make further interest rate increases the first order of business for Ben Bernanke, whose nomination to succeed Federal Reserve Chairman Alan Greenspan won approval from the Senate Banking Committee yesterday.

The federal funds rate, a key short-term rate, is now at 4 percent. Analysts said they believe the Greenspan Fed will boost it twice more at its December and January meetings and that Mr. Bernanke, who is scheduled to take over Feb. 1, will keep raising the funds rate through the first half of next year, pushing it perhaps as high as 5.5 percent.

The Fed fights inflation by raising the cost of borrowing money, thus slowing economic activity.

“The Fed is quite concerned about letting the inflation genie out of the bottle,” Mr. Behravesh said. He predicted that core inflation, which has been running at an annual rate of 2.1 percent so far this year, will rise to 2.5 percent in coming months.

The Fed has been operating for several years with an unofficial target rate for core inflation of between 1 percent and 2 percent.

Mr. Bernanke said at his confirmation hearing Tuesday that he would like to establish an official inflation target for the Fed, but said he would only move after further study and after gaining a consensus of other Fed officials.

So far this year, overall consumer prices have been rising at an annual rate of 4.9 percent as energy prices have shot up at a 37.1 percent rate. Last year, overall prices were up 3.3 percent.

Food costs edged up 0.3 percent in October, a slight acceleration from a 0.2 percent September increase, while clothing costs fell by 0.4 percent and new car prices rose 0.5 percent.

In other economic news, the Commerce Department reported that business inventories rose by 0.5 percent in September, the largest increase in eight months, reflecting in part rising levels of unsold autos.

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