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Gas prices down but core inflation up { September 2006 } Original Source Link: (May no longer be active)
http://www.chron.com/disp/story.mpl/ap/fn/4269278.htmlhttp://www.chron.com/disp/story.mpl/ap/fn/4269278.html
Oct. 18, 2006, 4:53PM
Consumer Prices Dip, Core Inflation Up
By MARTIN CRUTSINGER AP Economics Writer
© 2006 The Associated Press
WASHINGTON — Consumer prices fell by the largest amount in 10 months in September, easing worries that inflation was about to get out of control.
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The Labor Department reported that the Consumer Price Index dipped by 0.5 percent last month, a better-than-expected performance that was led by a huge decline in gasoline and other energy products.
Core inflation, which excludes energy and food, edged up by a moderate 0.2 percent, the third straight month of modest gains following higher readings earlier in the year.
Wall Street investors cheered the news, believing it will convince the Federal Reserve that its goal of slowing the economy enough to cool inflation pressures is working and officials won't feel the need to boost rates further either at next week's meeting or for the rest of the year.
The Dow Jones industrial average briefly traded above the 12,000 mark before retreating. The index of blue chip stocks still managed to close at a record, gaining 42.66 points to end the day at 11,992.68. It was the eighth record close in the past two weeks.
"We are in the midst of a near picture-perfect soft-landing," said Bernard Baumohl, head of the Economic Outlook Group, a New Jersey forecasting firm.
Baumohl said the Fed, which raised rates 17 consecutive times before taking a pause in August and September, should remain on hold for the rest of this year and well into 2007.
The 0.5 percent decline in consumer prices last month was the biggest one-month decline since prices fell by 0.7 percent last November as energy prices retreated after having spiked sharply with the shutdown of Gulf Coast refineries following Hurricane Katrina.
Gasoline prices fell by 13.5 percent last month, the biggest one-month decline since a drop of 16.1 percent last November. Motorists have seen pump prices drop by more than 80 cents after hitting a record high of $3.04 per gallon in early August.
In a hopeful sign for the upcoming winter heating season, home fuel oil prices fell by 6.1 percent. Natural gas prices were up for the month but are down 19 percent at an annual rate so far this year.
Republicans hope that the fall in gasoline and other energy prices and the soaring stock market will put voters in a good mood when the go to the polls in three weeks.
Democrats contend that the recent drop in energy prices can't mask the fact that middle-class wages have lagged behind in the current recovery.
However, there have been some recent indications that wage gains are beginning to pick up. The Labor Department reported Wednesday that real weekly earnings for non-supervisory workers were up 2.2 percent in September compared to a year ago, the best year-over-year performance since late 1998.
Despite this improvement, Democrats, who are hoping to use the economy's performance to win back control of Congress, said that even with that improvement wages are still lower, after adjusting for inflation, than they were three years ago.
"The president's policies simply have not delivered a rising standard of living to most American families," said Sen. Jack Reed of Rhode Island, the top Democrat on the congressional Joint Economic Committee.
The government also announced Wednesday that the nation's nearly 49 million recipients of Social Security benefits will receive a 3.3 percent increase in their checks as a cost-of-living adjustment starting in January, an increase that is based on the change in consumer prices from the third quarter of this year compared to the same period in 2005.
Food prices rose by 0.4 percent in September with vegetable prices jumping 6.6 percent, the biggest increase since April 2005. Clothing costs were up 0.6 percent last month but have been contained over the past 12 months, rising by just 1 percent.
So far this year, consumer prices are rising at an annual rate of 3.4 percent, matching the increase for all of 2005. Excluding food and energy, core inflation has been rising at an annual rate of 3 percent, still above the Fed's comfort zone of 1 percent to 2 percent.
However, economists believe with price pressures now moderating, the Fed will be content to keep rates unchanged well into 2007.
In other economic news, the Commerce Department reported that construction of new homes and apartments posted an unexpected gain of 5.9 percent in September, rising to a seasonally adjusted annual rate of 1.772 million units after having fallen for three consecutive months.
Applications for new building permits were down 6.3 percent, the eighth consecutive monthly decline. Analysts predicted the once-hot housing market could continue to cool with lower sales and construction activity until the a record backlog of unsold homes is worked down.
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On the Net:
Consumer prices: http://www.bls.gov/cpi
Housing starts: http://www.census.gov/newresconst
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