Consumer Prices Rise at Fastest Pace in Quarter Century

By Howard Schneider and Renae Merle
Washington Post Staff Writers
Wednesday, July 16, 2008; 11:42 AM

Soaring food and energy costs pushed consumer prices up in June at the
fastest rate in a quarter-century, further pressuring households already
buffeted by rising joblessness, falling home prices and a sinking stock
market.

The 1.1 percent rise in prices between May and June was almost double
the rate of the prior month and helped push consumer prices up by 5
percent since June of last year -- a faster than expected rate that
could further complicate the choices confronting federal policymakers.

Federal Reserve Chairman Ben S. Bernanke said yesterday in Congress that
inflation was a mounting concern, particularly given the escalation in
prices for crude oil, basic food items and other commodities.

But growth has also ebbed, and Bernanke yesterday deemed it a
"significant challenge" balancing between steps that might support
growth -- such as lowering interest rates -- and those that might
control rising prices.

Today's report from the Bureau of Labor Statistics documented the trend:
Consumer prices overall are up 5.5 percent for the first half of the
year, measured on a seasonally adjusted annual basis, compared to a 4.1
percent jump in 2007. In the past three months alone, consumer prices
have jumped 7.9 percent on an annualized basis.

Energy costs accounted for much of that, jumping roughly 30 percent, on
an annualized basis, since the start of the year. Food prices also
continued their steady rise, increasing at an 8 percent annualized rate
during the past three months.

So-called core inflation -- which excludes food and energy -- was more
tempered, increasing at a 2.5 percent rate during the past three months.
But that was also substantially faster than the three months before.

"The June uptick in the core rate provides an early indication that the
tidal surge in energy and other commodity costs are trickling through to
consumer prices at large," Kenneth Beauchemin, U.S. economist for Global
Insight, said in a research note today.

The inflation trend as well as the outlook for economic growth means
that the Fed will likely not hike interest rates until 2009, he said.
"Indeed, the remote chance for financial disaster in the coming months
keeps a rate cut on the table," Beauchemin said.

Even though economists and some policymakers focus more on core
inflation, the jump in the cost of basic goods such as food and gasoline
still left consumers with less purchasing power. In a separate report,
the Department of Labor said real wages dropped by nearly 1 percent in
June, as the rise in prices more than offset a slight increase in wages.

That may undercut consumer spending, a mainstay of the U.S. economy, at
a time when growth is already at a crawl.