- The Washington Times - Friday, October 14, 2005

Consumer prices saw their biggest gain in 25 years last month as Hurricanes Katrina and Rita raised gasoline costs and depressed industrial production and consumer confidence.

The Labor Department reported yesterday that inflation jumped 1.2 percent last month. Ninety percent of the increase came from a record-shattering 12 percent surge in energy prices, reflecting tight supplies after widespread shutdowns of refineries and oil and natural gas production along the Gulf Coast.

Those shutdowns contributed to a 1.3 percent drop in industrial production in September, the biggest falloff in 23 years.

On the consumer front, retail sales managed to eke out just a 0.2 percent gain in September, which would have been a 0.2 percent decline if it had not been for a jump in gasoline sales that reflected the soaring prices that went above $3 per gallon. Much of the weakness reflected a big drop in auto sales after two big months of incentive-induced sales.

The jolt to energy prices from the hurricanes continued to have an adverse effect on consumer confidence, sending the University of Michigan’s index down further in mid-October to a 13-year low of 75.4, just the latest evidence that the widespread hurricane devastation was roiling the national economy.

“All these statistics reflect the full force of the hurricanes on the broader economy and we will probably have another month of ugly statistics,” said Mark Zandi, chief economist at Economy.com, an economic-consulting firm.

In news for retirees, the inflation figures mean more than 48 million Americans will get a 4.1 percent increase in their monthly Social Security checks next year, the largest in 15 years. That increase, linked to consumer prices, will mean a gain of about $39 a month.

In yet another report, the administration said the federal deficit reached $319 billion for the budget year just ended, down from last year’s record red ink but likely to rise again in 2006 because of Katrina-driven spending.

The big jump in inflation last month hit the 80 percent of the work force in non-supervisory jobs, who saw their average weekly earnings, after adjusting for inflation, fall by a sharp 1.2 percent, the third straight monthly decline, the Labor Department said in a separate report.

While the headline numbers were much worse than expected, some economists insisted that buried inside the reports were reasons to believe that Katrina and Rita will represent a brief bump with the economy resuming stronger growth next year.

The so-called “core rate of inflation,” which excludes energy and food, posted a modest 0.1 percent increase, better than the 0.2 percent rise that had been expected and the sixth straight month of a benign reading for underlying inflation.

“Every piece of economic data we have received over the last six weeks is showing signs of higher inflation that threatens to erode economic growth,” said Richard Yamarone, chief economist at Argus Research in New York. “The aftershocks of the hurricanes may be longer and deeper than many now believe.”

The worry is that if inflation pressures become more widespread, the Federal Reserve, which has been content so far to raise interest rates at a gradual pace, might become more aggressive in raising rates to fight inflation.

At the White House, officials expressed confidence that Federal Reserve Chairman Alan Greenspan and his colleagues will be able to manage interest rates to keep inflation under control and the economy moving forward.

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