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Mike
01-21-2005, 01:28 AM
Energy costs push consumer prices up 3.3%http://www.twincities.com/images/common/spacer.gif
BY NELL HENDERSON
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Washington Post
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WASHINGTON — Consumer prices rose faster than most workers' wages last year, as surging energy prices pushed inflation up to the highest level in four years, the Labor Department said Wednesday.

Americans paid 26.1 percent more for gasoline last month than they did a year earlier, as well as higher prices for food, housing, medical care, college tuition, recreation and a variety of other goods and services.

After all those price increases, the department's consumer price index, or CPI, one of the most widely followed measures of inflation, was 3.3 percent higher in December than a year before. That rate of inflation was much faster than the 1.9 percent rate of 2003, and the highest since the 3.4 percent rate of 2000.

Workers' pay also rose last year — but more slowly than prices. After adjusting for inflation, average hourly wages for production and nonsupervisory workers fell 0.8 percent — the first such decline since 1994, Labor figures show.

"Thus, any real income growth these families achieved last year was a function of more work at lower hourly wages," wrote Jared Bernstein, senior economist at the Economic Policy Institute, in an analysis of the data. "The recovery is no longer jobless, but the benefits of the growing economy are still failing to reach many working families."

Many economists believe inflation, along with world oil prices, peaked last year and will ease somewhat this year.

Oil prices have already fallen to around $48 a barrel recently from a record above $55 a barrel in October. Gasoline prices have dropped to a current national average of $1.82 for a gallon of regular from a high of $2.05 in May, according to the AAA auto club.

The CPI swung up and down on a monthly basis last year, as energy prices fluctuated. It slid 0.1 percent in December, as energy prices dropped 1.8 percent.

Several economists expect slower inflation this year, in large part because they forecast lower, or at least more stable, oil prices. The jump in prices last year was fueled primarily by rising global demand at a time of limited supplies.

Traders bid prices higher as terrorist attacks, hurricanes and political turmoil in oil-producing countries disrupted, or even threatened to disrupt, supplies.

The U.S. and global economies are forecast to expand more slowly this year, in part because of rising interest rates. That, in turn, means slower growth in demand for oil. If prices are not disrupted by unforeseen events — a big wild card, to be sure — oil prices should settle in the low $40s per barrel this year, several economists forecast.

That should cool inflation significantly. Consumer energy prices rose 16.6 percent last year, the biggest increase since an 18.1 percent jump in 1990 — the year oil prices shot up after Iraq's invasion of Kuwait. The jump in energy prices last year accounted for more than a third of the overall rise in the overall CPI.

With lower oil prices, the CPI is forecast to rise by around 2 percent this year, by many estimates.

In other economic reports released Wednesday, the Labor Department said the number of laid-off workers filing new claims for unemployment benefits totaled 319,000 last week, a drop of 48,000 from the previous week. It was the biggest one-week improvement in more than three years and relieved worries that the job market might be weakening because of two prior weeks of rising jobless claims.

And construction on new homes and apartments, after being depressed by rainy weather in November, soared 10.9 percent in December, the Commerce Department reported. For the entire year, construction climbed 5.7 percent, the fourth annual gain in a row, as work was started on 1.953 million homes and apartments.

Housing has boomed in recent years as the Federal Reserve cut interest rates to the lowest levels in 46 years. But with the Fed now raising rates to make sure inflation does not get out of control, analysts said the country has probably seen a peak for housing activity.