- The Washington Times - Wednesday, July 16, 2008

The specter of stagflation haunted the U.S. economy Tuesday.

Spurred by soaring energy costs, wholesale prices jumped 1.8 percent last month and have increased 9.2 percent during the past 12 months, the Labor Department reported. It was the largest 12-month gain in 27 years.

Retail sales rose a minuscule 0.1 percent in June. Without the painful increase in gasoline prices, retail sales would have declined in June — even though the federal government had distributed more than $80 billion in rebate checks since late April in an effort to stimulate the slowing economy.

“It’s another bad day to be a central banker,” said Vincent Reinhart, a resident scholar at the American Enterprise Institute and a former director at the Federal Reserve’s division of monetary affairs.

Federal Reserve Chairman Ben S. Bernanke told the Senate Banking, Housing and Urban Affairs Committee on Tuesday that the “upside risks to the inflation outlook have intensified” in an environment of “significant downside risks to the outlook for growth.”

Telling the committee the U.S. economy faces “numerous difficulties,” Mr. Bernanke said the inflation outlook remains “unusually uncertain.”

The dismal numbers for June wholesale-price inflation came on the heels of a Labor Department report Friday that revealed import prices had increased 20.5 percent over the past 12 months. That was the largest 12-month jump since the import price index was first published, in September 1982.

Prices for petroleum imports in the past year have increased 78.6 percent — the fastest 12-month pace since the run-up to the Iraq war, when the price of petroleum imports increased 82.5 percent.

The spot price for West Texas intermediate crude oil increased $15 per barrel, from $21 to reach $36, during the 12 months before the Iraq war and by $67 per barrel, from $67 to a total of $134, over the past 12 months.

Wholesale prices have accelerated dramatically during the past 18 months. After rising only 1.1 percent in 2006, wholesale prices jumped 6.2 percent in 2007. The annualized rate of wholesale price inflation then rose to 10.7 percent during the first three months of 2008 and reached 14.1 percent during the past three months. Wholesale energy prices increased at a 53 percent annual rate during the April-June period.

“I’ve noticed [the price inflation] on virtually every consumable good, especially over the last few months,” said Preston Perry, a 47-year-old D.C. resident and Verizon technician who dropped by the Harris Teeter grocery store on Kalorama Road Northwest during his lunch break.

Wholesale prices for fresh vegetables and eggs have increased about 15 percent during the past year, but businesses have had difficulty forwarding their price increases to consumers. Consumer prices increased by 4.2 percent for the 12 months ending in May. The report on June consumer prices will be released Wednesday.

Overall, retail sales increased 0.1 percent in June, according to the Commerce Department, which revised May and April retail sales increases downward to 0.8 percent and 0.2 percent, respectively.

Excluding the $2 billion increase in sales at gasoline stations in June, retail sales would have declined by 0.5 percent last month. During the past year, excluding gas-station revenues, inflation-adjusted retail sales have declined about 3.5 percent.

“Honestly, I don’t even pay particular attention at the increase in individual items anymore. I just know that my average grocery bill is up 25 bucks,” said Rick Murphy, 38, an Alexandria lobbyist who was shopping at Capitol Hill Supermarket on Massachusetts Avenue in Northeast.

“I don’t know if it will impact me buying other things in the future. It hasn’t yet. But I ask myself that question every time I go shopping,” Mr. Murphy said.



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