WASHINGTON – Consumer prices — stoked by more expensive gasoline as well as pricier fruits and vegetables — heated up in October, rising by 0.6 percent, the biggest gain in five months.
The newest snapshot of the inflation climate, released by the Labor Department (search) Wednesday, bolstered the chances that the Federal Reserve would push up interest rates for a fifth time this year on Dec. 14.
The sizable increase in the Consumer Price Index (search), the government's most closely watched inflation barometer, came after prices rose by 0.2 percent in September.
Sharp increases in energy and food prices were the main culprits behind the acceleration in consumer prices for October.
Excluding energy and food prices, which can swing widely from month to month, "core" prices increased by a more modest 0.2 percent in October, following a 0.3 percent rise the previous month.
The pricing picture in October showed bigger increases than economists were forecasting. Some were expecting a 0.4 percent advance in overall consumer prices and a 0.1 percent rise in the core figure.
In a bid to prevent inflation from becoming a threat to the economy, Fed Chairman Alan Greenspan (search) and his colleagues embarked in June on a campaign to raise short-term interest rates. Economists said it is crucial for the Fed to move rates back to more normal levels after they were kept extraordinarily low to rescue the economy from the jolts of the 2001 recession and terrorist attacks.
Thus far, the Fed has ordered four quarter-point rate increases. The most recent one, last week, left the federal funds rate — the Fed's main tool for influencing economic activity — at 2 percent.
"The chances have clearly risen this month that the Fed will not take a holiday in December but rather continue on its program of quarter-point increases," said Carl Tannenbaum, chief economist at LaSalle Bank.
Other economic news also added to the case for another rate increase:
— Industrial production shot up by 0.7 percent in October, up from a 0.1 percent increase in September. The Federal Reserve report suggested the industrial sector is gaining momentum.
— Housing construction jumped by 6.4 percent in October to a seasonally adjusted annual rate of 2.03 million, the Commerce Department said.
From an economic point of view, inflation — while certainly a concern — isn't currently a major danger to the economy's expansion, analysts said.
Fed policy-makers, in a statement released after their meeting last week, said "inflation and longer-term inflation expectations remain well contained." They also said the economy appears to be growing "at a moderate pace despite the rise in energy prices."
The consumer price report comes one day after the government released data showing the wholesale costs soared in October by 1.7 percent, the biggest increase in more than 14 years.
The economy's soft patch in the spring and early summer had helped to keep prices relatively subdued, economists said. Now that the economy is picking up, inflation probably will be on the rise as well. A weaker U.S. dollar also is putting pressure on prices of imported goods, which gives U.S. producers more room to raise their prices.
Still, Tannenbaum and other economists said that they expect both wholesale and consumer prices for November to look a lot better, citing a moderation in crude oil costs and a settling down of some food costs that were pushed up as hurricanes hurt supplies.
In the CPI report, energy prices jumped by 4.2 percent in October, compared with a 0.4 percent drop in September. Gasoline prices last month surged by 8.6 percent and fuel oil costs went up by 9.4 percent. Both increases were the largest since February 2003. Natural gas prices went up 0.6 percent.
Oil prices, which hit a record high of just over $55 a barrel late last month, have moderated recently. Oil prices closed on Tuesday at more than $46 a barrel.
Food prices climbed by 0.6 percent in October, after being flat in September. Last month's increase reflected a 6.3 percent rise in the prices of fresh fruits, the largest since June 1984, and a 8.8 percent jump in vegetable prices, the biggest since February 1997. Supply disruptions related to hurricanes that tore through the Southeast were blamed for those big advances. Prices for beef and veal, pork, poultry and dairy products all dropped.
Elsewhere in the report: clothing prices rose 0.2 percent in October as more expensive fall and winter wear hit the racks. Airline fares went up by 1.4 percent, as fuel costs become more expensive. Medical care costs increased 0.4 percent.
In the first 10 months of 2004, consumer prices rose at an annual rate of 3.9 percent, compared with a 1.9 percent increase for all of 2003. That pickup has been led by soaring energy costs. Excluding energy and food costs, "core" inflation increased at an annual rate of 2.4 percent. That's also faster than the 1.1 percent increase registered for 2003.