Energy Pushes Consumer Prices Higher

By John S. McClenahen Anyone who has filled up a car or SUV with gasoline recently knows that energy prices are rising dramatically. Indeed, a 4% rise in the cost of energy pushed the U.S. Labor Department's Consumer Price Index (CPI) up 0.3% in January. Last month's increase in the CPI, one of the most closely watched measures of U.S. inflation, was three times the 0.1% rises posted in November and December 2002. It also was the largest monthly increase since the 0.4% rise in the CPI in April 2002. To underscore the impact of rising energy prices on the overall index, the so-called core CPI, which strips out often-volatile month-to-month changes in energy and food prices, rose just 0.1% in January, half its 0.2% rate of increase in December. A single month does not make for an inflation trend. But January's sizable increase in the CPI came in the same month that the Labor Department's Producer Price Index for finished goods posted a 1.6% gain, the biggest in more than 10 years. Chairman Alan Greenspan and the other 11 members of the Federal Reserve's Open Market Committee, the policy group that sets U.S. interest rates, will be watching forthcoming data intensely. However, so far there is no indication that the group feels compelled to do battle against inflation and is ready to raise the federal funds rate from its 40-year low at 1.25%.

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