Consumer prices surged in September by the largest amount in more than 25 years as Hurricanes Katrina and Rita sent energy prices soaring at the fastest pace on record. And sky-high oil and natural gas prices appear to be dampening Americans' economic outlook, as consumer sentiment fell in October to its lowest level since 1992.
The Labor Department reported Friday that inflation jumped 1.2 percent last month. It said that 90 percent of that increase came from a record-setting 12 percent surge in energy prices which reflected gasoline prices that briefly topped $3 per gallon last month after widespread shutdowns of refineries and oil and natural gas platforms along the Gulf Coast.
The White House downplayed the report.
“The president has confidence in the Federal Reserve when it comes to monetary policy and their ability to address any inflation concerns,” White House spokesman Scott McClellan said.
The Labor Department said that inflation was more moderate outside of energy and food. The so-called core rate of inflation rose by just 0.1 percent, the sixth straight month of benign readings in this area.
However, economists and officials at the Federal Reserve are worried that the energy jolt from the Gulf Coast hurricanes could start causing more widespread inflation problems.
The sharp jump in consumer prices in September helped to push next year’s cost of living adjustment for 48 million Social Security recipients to 4.1 percent, the biggest advance since 1991.
Separately, a check of consumer sentiment closely followed in the financial markets showed a disappointing decline. Sentiment fell unexpectedly in early October to its lowest level in 13 years, as high gasoline prices and the fallout from hurricane damage continued to take their toll, the University of Michigan’s preliminary October index of consumer sentiment showed.
In the inflation report, the 1.2 percent rise in consumer prices was far worse than analysts had expected. They had been looking for a gain of around 0.9 percent. However, core inflation was better behaved at 0.1 percent. Analysts had expected a rise of 0.2 percent in this area, which is being closely watched by policy-makers at the Fed for signs that the surge in energy costs is beginning to show up in higher prices in other areas.
The Fed last month boosted a key short-term interest rate for an 11th time and minutes of their discussions at the Sept. 20 meeting showed that Fed officials were clearly worried about what the big jump in energy costs following the Gulf Coast hurricanes would do to overall inflation pressures.
Analysts believe the Fed will keep raising interest rates as a way to fight inflation at their final two meetings of this year, in November and December.
The report on consumer prices showed that energy prices shot up by 12 percent, led by a 17.9 percent surge in gasoline prices. Natural gas prices rose by 12.1 percent rise and home heating oil prices jumped 12.7 percent. The government this week warned homeowners to expect heating bills to soar this winter.
Food costs were up a modest 0.2 percent in September as the cost of beef and dairy products actually declined.
Airline fares, which have been climbing because of higher jet fuel costs, actually dropped by 1.4 percent last month. The price of new cars rose by 0.4 percent but clothing costs dipped by 0.1 percent.
In other economic news, the Commerce Department reported that retail sales managed to post a small increase of 0.2 percent in September. However, that tiny gain came after a huge 1.9 percent plunge in retail sales in August.
The concern is that the surge in energy prices will cause consumers to cut back their spending in other areas, a development that would make the economic hit from Katrina and Rita much more severe.
Sales at gas stations were up 4 percent last month. However, much of that increase reflected the surge in pump prices rather than increased volume.
If gasoline sales were excluded, sales at all other retailers actually fell by 0.2 percent in September.
Meanwhile, the Federal Reserve reported that the devastating hurricanes sent output at the nation’s factories, mines and utilities plunging by 1.3 percent in September, the biggest one-month drop in more than 23 years.
The decline in industrial output was led by a 9.1 percent drop in output in the mining sector, a category that includes oil and natural gas. Output at U.S. factories fell by 0.5 percent and utility output was down 0.9 percent.
The Associated Press and Reuters contributed to this report.