- The Washington Times - Tuesday, October 18, 2005

Wholesale inflation jumped by the largest amount in 15 years in September and there are worrisome signs that soaring energy prices resulting from the hurricanes are beginning to spill over to the rest of the economy.

Prices at the wholesale level rose 1.9 percent, the biggest increase since the first Persian Gulf War in 1990. Like the 1.2 percent September jump in consumer prices announced last week, the biggest in 25 years, the surge was led by energy costs reflecting the widespread shutdowns of production in the aftermath of Hurricanes Katrina and Rita.

But the report on wholesale prices raised more worries because it showed that outside of food and energy, price pressures were increasing. The “core rate” of wholesale inflation rose by 0.3 percent last month after no change in August.

Of 30 nonfood consumer goods tracked in the wholesale price report, 20 posted price increases and only two — soaps and toys — showed price declines, a marked turnaround from earlier in the year when most categories were showing declines.

“Slowly but inexorably, inflationary pressures are building across the economy,” said Joel Naroff, chief economist at Naroff Economic Advisors, a private consulting firm.

The concern is that a sharp jump in energy prices will begin to put pressure on products outside of energy and cause the underlying rate of inflation to start rising.

That could prompt the Federal Reserve to accelerate its interest rate increases in an effort to slow the economy as a way of keeping inflation from getting out of control.

However, if tight global supplies keep energy prices at elevated levels, the inflation pressures might intensify even as the economy is slowing, pushing the country into “stagflation” — stagnant growth and rising inflation, something not experienced in America since the oil shocks of the 1970s and early 1980s.

At the moment, analysts said the threat of stagflation is remote in part because the Fed started gradually increasing interest rates 14 months ago to avoid having to slam on the brakes.

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