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Record plunge in gasoline drops consumer prices { December 15 2005 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/wp-dyn/content/article/2005/12/15/AR2005121500344_pf.htmlhttp://www.washingtonpost.com/wp-dyn/content/article/2005/12/15/AR2005121500344_pf.html
Consumer Prices Plunge; Production Jumps
By MARTIN CRUTSINGER
The Associated Press
Thursday, December 15, 2005; 11:16 AM
WASHINGTON -- A record plunge in the cost of gasoline pushed consumer prices down by the largest amount in 56 years in November while industrial production posted a solid gain.
The new government reports Thursday provided further evidence that the economy is shaking off the blows delivered by a string of devastating hurricanes. But analysts cautioned that the huge drop in consumer prices was overstating the improvement in inflation.
The Labor Department report showed the Consumer Price Index fell by 0.6 percent last month, the biggest decline since a 0.9 percent fall in July 1949. It reflected a record fall in gasoline prices, which have been retreating since they surged to above $3 per gallon right after Katrina hit.
Meanwhile, the Federal Reserve said output at the nation's factories, mines and utilities rose a solid 0.7 percent last month following a 1.3 percent rise in October. Industrial output had plunged by 1.6 percent in September, reflecting widespread shutdowns of oil refineries, chemical plants and other factories along the Gulf Coast.
The decline in consumer prices was better than the 0.4 percent drop that analysts had been expecting. Outside of the volatile food and energy categories, so-called core prices were up 0.2 percent, matching the October increase. Both months showed a pickup in core prices from benign readings of 0.1 percent in the previous five months.
Brian Bethune, senior economist at forecasting firm Global Insight, said that he expected to see further increases in core inflation in coming months, reflecting the cumulative effect of higher energy costs.
"Continued pressure on the core index over the next several months will keep the Federal Reserve vigilant on the inflation watch," he said, predicting further Fed rate hikes in January and March. The Fed raised rates for a 13th time on Tuesday.
The rise in industrial production reflected a 0.3 percent increase in manufacturing and a 4.8 percent surge in the category that covers oil and gas production, which is recovering as Gulf Coast wells and refineries get back on line. Output at the nation's utilities was up 0.3 percent.
In other economic news, the number of people who have lost jobs because of the string of devastating Gulf Coast hurricanes climbed to 602,200 last week. That gain reflected a rise of 1,500 jobless applications linked to Katrina and Rita and an additional 1,000 claims linked to Wilma, which hit Florida in October.
Overall, the number filing new claims for unemployment benefits totaled 329,000 last week, up slightly from the 328,000 claims filed the week before but still at a level consistent with an improving labor market.
The huge 0.6 percent fall in consumer prices last month followed a small 0.2 percent October increase which had come after a 1.2 percent surge in September, which had been the biggest monthly gain in a quarter-century.
In early September, the nationwide price for gasoline briefly hit a record high above $3 per gallon. But since that time pump prices have been falling, including an additional decline of around 42 cents in November, as Gulf Coast production has resumed.
That decline pushed gasoline prices down by a record 16 percent in the CPI report, a drop that had followed a 4.5 percent decline in October.
Overall, energy prices were down a record 8 percent, reflecting not only the fall in gasoline but also declines of 6.1 percent for home heating oil and 0.5 percent for natural gas. Those drops still left prices higher than a year ago and homeowners will feel the pinch when they pay heating bills this winter.
Food costs were up 0.3 percent in November, with the prices of beef, pork and poultry all up. Fresh fruit prices also rose but the cost of vegetables dropped.
Through the first 11 months of this year, inflation at the consumer level has been rising at an annual rate of 3.8 percent, compared to an increase for all of 2004 of 3.3 percent. The slight acceleration in overall inflation reflected faster increases in energy prices, which are up at an annual rate of 21.7 percent so far this year compared to a rise of 16.6 percent for all of 2004.
Excluding food and energy, prices this year are up 2.1 percent, a well-behaved performance which was a slight improvement over the 2.2 percent rise in so-called core prices last year.
More than half of the 0.2 percent increase in core inflation last month was attributed to a 1.3 percent rise in the cost of hotel and motel rooms.
Medical care was up 0.6 percent last month, driven higher by rising drug costs, while new car prices and airline ticket prices both fell.
© 2005 The Associated Press
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