Inflation Surges on Record Energy Prices

WASHINGTON(Reuters) – Consumer prices in June rose by the biggest amount since1982 on a continued surge in gasoline prices, adding more weight to aneconomy struggling through a financial crisis and a housing downturn, agovernment report on Wednesday showed.

The Consumer Price Index, the government’s key measure of inflation,advanced 1.1 percent during the month, the biggest monthly rise sinceJune 1982, the Labor Department said. That was well above the 0.7percent increase economists polled ahead of the report were expecting.

Prices were up 5 percent from a year ago, the biggest year-on-yearrise since 1991 the department said. That gain was also considerablyhigher than the 4.5 percent rise Wall Street economists were expecting.

Taking into account those price increases, weekly earnings fell 0.9percent in June, the biggest decrease since September 2005 in theaftermath of Hurricane Katrina.

Excluding volatile food and energy prices, the so-called core CPIrose by a more tame 0.3 percent, but that rise was still higher thanthe 0.2 percent gain expected.

Energy prices advanced 6.6 percent during the month, reflecting a10.1 percent surge in gasoline prices as consumers are paying well inexcess of $4.00 a gallon. The department said energy costs accountedfor roughly two-thirds of the overall monthly increase in consumerprices.

In the report, airline fares jumped by 4.5 percent in June ascarriers lumped in surcharges for extra baggage and food to help offsethigher fuel costs.

Economists said the big rise in consumer prices makes the Fed’s taskof shoring up economic growth and curbing inflation more difficult.

"This increases concern that the Fed is not going to be able tolower interest rates if the economy remains weak. And as long as theeconomy remains weak, it will be hard for the Fed to raise rates tofight inflation," said Gary Thayer, chief economist at WachoviaSecurities in St. Louis.

He noted the core inflation rate is now 2.4 percent for the yearended in June, which shows that some of the increases in commodityprices are spreading to the prices of other goods.

Concerns about inflation will no doubt be raised again by FederalReserve Chairman Ben Bernanke when he appears before a House panellater on Wednesday to complete the second leg of the central bank’stwice-annual report to Congress on the health of the economy.

(Reporting by Joanne Morrison; Editing by Neil Stempleman)