- The Washington Times - Saturday, March 15, 2008


Consumer inflation posted its mildest reading in six months in February thanks to energy and food costs moderating, but the relief was expected to be short-lived with the upward climb in energy prices.

The Labor Department reported yesterday that consumer prices were unchanged in February, a better performance than the expected 0.3 percent gain.

Core inflation, which excludes energy and food, also held steady in February after a worrisome 0.3 percent jump in January.

The better-than-expected February inflation reading probably will be reversed in the coming months because of the recent spike in energy prices. Crude oil hit a record high this week above $110 per barrel and gasoline pump prices jumped to a national record of $3.28.

David Wyss, chief economist at Standard & Poor’s in New York, said that he believed the economy was currently in a recession, which will help to ease pressures on prices. However, he said offsetting that in part was the big decline in the value of the dollar, which is driving up the cost of imported goods.

Mr. Wyss predicted a big jump in consumer prices for March, reflecting the rebound in gasoline and other energy prices that has already occurred.

For February, energy prices posted a 0.5 percent decline. Gasoline prices fell by 2 percent, the biggest drop since last August.

Gains in food costs eased, going up 0.4 percent after a 0.7 percent jump in January.

The price of vegetables, fruit, poultry and pork declined. But the price of cereal and bakery products shot up by 1.8 percent, the largest monthly increase since January 1975. The higher costs partly reflect higher energy prices, which raise transportation costs. Also food prices have come under pressure because of the increased demand for corn in ethanol production.

The flat reading for core inflation in February left underlying inflation rising by 2.3 percent over the past 12 months. That still is above the Federal Reserve Board’s comfort range of 1 percent to 2 percent.

But the good reading in February should bolster the view that the central bank will move aggressively to cut interest rates next Tuesday in an effort to battle spreading economic weakness.

Many private analysts believe the Fed will cut rates by as much as one-half to three-fourths of a percentage point, seeking to either prevent a full-blown recession or at least moderate its effects.

Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh, said the combination of the more benign inflation report as well as continued fallout from the credit crisis would prompt the Fed “to give Wall Street what it wants” with an aggressive three-fourths of a percentage point rate cut next week.

In a New York speech, Mr. Bush acknowledged that prices at the gas pump and grocery stores are up and housing values are down, but he said the economy could weather these “uncertain times” as it has past problems.

The unchanged reading for overall consumer prices in February followed gains of 0.4 percent in January and December and 0.9 percent in November.

Clothing costs, climbing for five straight months, posted a 0.3 percent decline in February. The cost of new vehicles declined by 0.3 percent and airline fares fell by 0.3 percent. The decline in airline tickets was not expected to continue in the face of rising energy prices.

The cost of medical care posted an increase of 0.1 percent even though doctors’ fees fell. Medical care, the fastest-rising price category outside of energy, has risen by 4.5 percent over the past year.

For all of 2007, consumer inflation jumped by 4.1 percent, the biggest increase in 17 years.

That big increase has raised concerns about stagflation, the malady that beset the economy in the 1970s when economic growth stagnated at the same time that inflationary pressures increased.

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