Food and Energy Costs Push Consumer Prices Higher

02/22/2006

By VIKAS BAJAJ
NY Times
Published: February 22, 2006

Sharp increases in energy and food costs pushed consumer prices higher last month, the government reported today, but prices of other goods and services rose more modestly.

The report appears to allay fears that the surge in energy prices from last year would spark inflation in the broader economy, but analysts suspect it may not be enough to dissuade Federal Reserve policy makers from raising interest rates at least once and maybe twice more before stopping.

Consumer prices were up 0.7 percent in January, after dropping by 0.1 percent in December and falling 0.7 percent in November, the Labor Department reported. Excluding food and energy, the so-called core index was up 0.2 percent after a 0.1 percent increase in December and 0.2 percent rise in November.

Energy prices jumped 5 percent in the last month and the price of fruits and vegetables rose 1.7 percent. Oil, gasoline and other energy commodities, which had been falling at the end of last year from highs they set in the aftermath of Hurricane Katrina, began climbing higher last month because of concerns about Iran’s nuclear ambitions and strife in Nigeria.

Economists have been expecting those and past increases in energy to filter into other prices as businesses pass on the higher cost of doing business to consumers, but that has not happened in a significant way thus far, with the apparent exception of some foodstuffs.

Policy makers at the Federal Reserve, which has hinted that it is nearing the end of a two-year campaign to raise short term interest rates that now stand at 4.5 percent, have been keeping a close eye on inflation. During a recent appearance before Congress, the new Fed chairman, Ben S. Bernanke, suggested that policy makers might need to raise rates a bit further to keep the economy from overheating.

“Although we expect two more Fed funds rate hikes in the coming months,” said Kenneth Beauchemin, an economist at Global Insight, a research firm, “today’s report lessens the likelihood of increases further down the road.”

Compared with a year ago, the consumer price index was up 4 percent in January; excluding food and energy it was up 2.1 percent.

In a related report, the Labor Department said average weekly wages for production and non supervisory workers fell by 0.2 percent when adjusted for inflation. They were up 0.4 percent in unadjusted terms.