Inflation rate in March increases
Energy, food costs lead the way; higher levels are expected
WASHINGTON - Inflation rose again last month, reflecting big jumps in the cost of energy and airline tickets. And the forecast is for even bigger energy-related increases to come, including the possibility of $4 per gallon gasoline by Memorial Day.
Those inflation pressures are occurring just as the economy seems to be sinking into a recession, with consumers cutting back on spending and the housing industry, where all the troubles started, sinking further.
That was the somber news from a batch of economic reports released yesterday depicting an economy struggling with multiple problems from a prolonged slump in housing, soaring energy prices, a severe credit crisis, and rising unemployment.
The Labor Department said consumer prices rose 0.3 percent in March, after being unchanged in February, as energy prices jumped 1.9 percent and airline fares, reflecting higher fuel costs, increased 3 percent, the biggest one-month gain in six years.
Food prices, which have been steadily rising for more than a year, were up 0.2 percent in March and 4.4 percent over the past 12 months. The price of some food staples showed even bigger increases over the past year, including a 14.7 percent rise in the price of bread and 13.3 percent for milk.
With crude oil prices setting a record over $115 per barrel yesterday, and food prices under pressure from global shortages, analysts said consumers will feel more inflation pressures.
"People are going to be paying a lot more for gasoline and groceries in the months ahead," said Mark Zandi, chief economist at Moody's Economy.com. "Nothing is going right . . . That is why consumer confidence has fallen to the lowest point since the early 1980s."
Zandi said the rise in food and fuel prices has been a significant drain on consumers' purchasing power, another reason he and other analysts believe the country is in a recession. Consumer spending accounts for two-thirds of economic activity.
While the Bush administration is hoping economic stimulus checks being mailed to households in May will make any slump short and mild, Zandi said the $100 billion in payments consumers will get will be just enough to offset higher gasoline bills, leaving nothing left to boost consumer spending.
And the housing industry remained under severe strain with construction of homes and apartments plunging 11.9 percent in March, the Commerce Department reported, double what had been expected, to a seasonally adjusted annual rate of 947,000 units, the slowest pace in 17 years.
