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Families' budget squeezed by rising costs
The Associated Press
WASHINGTON — People are feeling the pinch from rising inflation.
"It's tough out there for most households," economist Joel Naroff said after the government reported Wednesday that consumer prices galloped ahead in January at the fastest pace in four months.
The most closely watched inflation barometer, the Consumer Price Index (CPI), advanced by 0.7 percent, compared with a 0.1 percent dip in December. The seesaw pattern mostly reflects gyrating energy prices.
"Consumers continue to be battered by rising costs," said Naroff, president of Naroff Economic Advisers.
With overall inflation gaining momentum in January, families' budgets were strained. A separate report, also released by the Labor Department, showed that workers' average weekly earnings, adjusted for inflation, dropped by 0.4 percent in January compared with a year ago. For most workers last year, paychecks didn't keep pace with inflation.
While the Bush administration has talked often about the good shape of the economy, Democrats have expressed worries about low- and middle-income families struggling under the weight of rising prices and living paycheck to paycheck.
The main culprits behind January's higher CPI reading were rising energy and food prices.
Excluding energy and food costs, though, "core" prices rose by a modest 0.2 percent in January, after a 0.1 percent increase in December. More expensive clothing and new cars were mostly blamed for the slight pickup in core inflation.
Fed officials are especially interested in the core inflation readings. By excluding energy and food prices, which can swing widely from month to month, the core inflation gauge gives economists a better sense of how other prices are acting.
Fed officials don't want to see elevated energy prices feeding into the retail prices of lots of other goods and services, something that would lead to a broader bout of inflation spreading through the economy.
Cooper and other economists said the Fed is on track for another rate increase on March 27-28 — Ben Bernanke's first meeting as Federal Reserve chairman — and may bump up rates again at the following session May 10. Either way, the Fed is probably nearing the end of its nearly two-year credit-tightening campaign, analysts said.
To fend off inflation, the Fed last month — in the last major piece of business for then-chairman Alan Greenspan — boosted a key interest rate to 4.50 percent, the highest in nearly five years.
On Wall Street, investors were cheered that the core inflation reading was in line with forecasts and that crude-oil prices calmed down in trading Wednesday. The Dow Jones industrials gained 68 points.
In the inflation report, January's 0.7 percent jump in overall consumer prices was the biggest since a 1.2 percent leap in September when the Gulf Coast hurricanes propelled gasoline prices past $3 a gallon and other energy prices skyward.
Energy prices in January rose 5 percent, the most since an 11.8 percent surge in September. Gasoline prices last month went up 6.4 percent, also the biggest increase since September.
Electricity prices soared 5.5 percent, the largest one-month rise on record. That huge gain reflected efforts by utilities to pass on to consumers their higher fuel costs. Natural-gas prices rose 1.7 percent, the most since October.
Food prices, meanwhile, increased 0.5 percent in January, the most in nine months. Rising prices for fruits, vegetables, dairy product, beef and veal swamped falling prices for poultry and pork.
The report also showed that airfares in January climbed by 1.2 percent, the most since October.
New-car prices rose 0.6 percent, the biggest gain in a year.
Clothing prices went up 0.3 percent, the largest increase since August.
Education prices, including tuition and books, rose a hefty 0.7 percent last month.
Medical care — like education, generally a sore spot for consumers' pocketbooks — went up by just 0.1 percent in January. That reflected a record 0.8 percent drop in the price of physicians' services.
Copyright © 2006 The Seattle Times Company