- The Washington Times - Wednesday, February 27, 2008


Consumer confidence and home prices posted sharp declines while higher costs for such basics as food and energy drove wholesale inflation at the fastest pace in 25 years, according to new reports yesterday.

The latest numbers raised the threat of a return of “stagflation,” the economic curse of the 1970s in which economic growth stagnates at the same time inflation races ahead.

The 1 percent January jump in wholesale prices was led by a surge in the prices of energy, food and prescription drugs and followed a report last week that consumer prices increased by a bigger-than-expected 0.4 percent because of price pressures in the same areas.

Over the past 12 months, wholesale prices rose 7.4 percent, the largest yearly gain since late 1981. Analysts warned consumers to brace for more bad inflation news with crude-oil prices rising to records above $100 per barrel and with more evidence that the prolonged jump in energy prices is starting to break out into more widespread price problems.

Meanwhile, the New York-based Conference Board reported its confidence index fell to 75 this month, down from a revised January reading of 87.3. The drop was far below what analysts had forecast and put the index at its lowest level since February 2003, a period that reflected anxiety in the run-up to the Iraq war.

A third report showed that home prices measured by the S&P;/Case-Shiller Index dropped 8.9 percent in the fourth quarter of last year, and compared with the same period in 2006, marks the steepest decline in the 20-year history of the index.

“Home prices across the nation and in most metro areas are significantly lower than where they were a year ago,” said Yale University professor Robert Shiller, one of the index’s creators. “Wherever you look, things look bleak.”

Analysts said rising inflation, slumping home prices, falling stocks and an economy flirting with recession combined to rattle consumers’ nerves.

“There is no evidence that the recent collapse in consumer confidence is going to turn around any time soon,” said Brian Bethune, senior economist at Global Insight. He said the drop in confidence will lead to a cutback in consumer spending that will trigger a brief recession in the first half of this year. And he cautioned that “severe negative dynamics” at present could make the forecast of a mild recession too optimistic.

Private economists predicted further declines in housing prices in the months ahead, as the two-year housing slump continues with no signs of a turnaround. The demand for homes is being constrained by tighter lending standards imposed by financial institutions enduring multibillion-dollar losses from soaring mortgage foreclosures. Those foreclosures are dumping more homes back into an already glutted market.

RealtyTrac Inc., based in Irvine, Calif., reported the number of homes facing foreclosure climbed 57 percent in January from the previous year and that more lenders are being forced to take possession of homes they can’t unload at auctions.

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