Consumers paid more to fill up their gas tanks, buy groceries and go to the hospital last month as prices on a wide range of items pushed...
WASHINGTON — Consumers paid more to fill up their gas tanks, buy groceries and go to the hospital last month as prices on a wide range of items pushed higher.
Inflation was increasing even as the economy was slowing dramatically, a development certain to raise concerns at the Federal Reserve, which has been cutting interest rates aggressively in the belief that fighting off a threatened recession was more important than worrying about inflation pressures.
The Labor Department reported that its closely watched Consumer Price Index (CPI) posted a gain of 0.4 percent last month, matching the December increase and higher than the 0.3 percent rise that analysts had expected. Food costs jumped by the largest amount in 11 months, led by big gains for vegetables, fruit, poultry and pork.
Core inflation, which excludes food and energy, rose by 0.3 percent, the biggest jump in this measure in seven months. That increase reflected higher prices for medical care, education, clothing, tobacco and airline fares.
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“The economy may be faltering but that has not stopped firms from raising prices,” said Joel Naroff, chief economist at Naroff Economic Advisers. “It didn’t matter whether you went to the supermarket or ate out, costs were up.”
Some economists say growth in this quarter and the next will turn negative, fulfilling the classic definition of a recession. To combat the economic weakness, Congress passed a $168 billion economic-stimulus package to provide tax rebates to millions of families starting this spring.
The Fed slashed its own forecast for economic growth in a new projection released Wednesday but still had no recession in its outlook. The updated forecast projected the overall economy will grow between 1.3 and 2 percent this year — as measured by gross domestic product (GDP), down from an October forecast when the Fed had predicted the economy would grow by a stronger 1.8 to 2.5 percent this year.
With the economy slowing, the Fed projected that the jobless rate will rise to between 5.2 and 5.3 percent this year. The old forecast was for the rate to climb as high as 4.9 percent. Last year, unemployment averaged 4.6 percent.
And, with energy prices heading upward, the Fed also raised its projection for inflation. It now expects inflation to be between 2.1 and 2.4 percent this year, up from the previous forecast of 1.8 to 2.1 percent.
Meanwhile, the Labor Department said that average weekly earnings for nonsupervisory employees, the bulk of the work force, fell by 1.4 percent last month, compared with a year ago. It was the fourth consecutive monthly decline, when compared with a year ago, and further evidence that wage gains are failing to keep up with inflation.
And the Bureau of Labor Statistics said Wednesday that inflation-adjusted earnings for average workers have fallen 1.2 percent over the last year as higher food and fuel costs have eroded purchasing power.
Earnings adjusted for inflation — also known as real earnings — have fallen for eight of the last 13 months and were down 0.5 percent last month compared with December, according to the labor-statistics agency.
Average weekly earnings were $592.74 last month, or roughly $30,800 a year. While that’s about $1,000 a year more than workers averaged in January 2007, inflation has increased at a rate of 4.3 percent for the same period, outpacing the 3.2 percent earnings gain.
The group that has lost the most purchasing power is retail workers, whose earnings, controlled for inflation, fell 4 percent over the last year.
For all of 2007, consumer inflation rose by 4.1 percent, the biggest increase in 17 years, as the costs of both food and energy accelerated sharply.
Economists said they still think that food and energy will moderate this year as the weak economy dampens price pressures, but they conceded that events could derail those expectations, noting the jump this week in oil prices to a close on Tuesday above $100 per barrel for the first time in history.
Last month energy costs were up 0.7 percent with gasoline costs rising by 1.2 percent.
Medical costs showed a 0.5 percent increase, up from a 0.3 percent rise in December. Prescription drug prices shot up by 0.7 percent, the biggest rise in a year, while hospital prices were up by 1 percent.
The category that includes education costs rose by 0.4 percent while airline fares were up by 0.8 percent, reflecting higher fuel costs, and clothing costs rose by 0.4 percent, while clothing costs rose by 0.4 percent.
Analysts blamed the fifth monthly rise in clothing prices on a weaker dollar against many foreign currencies, which pushes the price of imported clothes higher.