Higher fuel costs boost Consumer Price Index

Confidence in economy is found to be in decline

March 18, 2004|By BLOOMBERG NEWS

WASHINGTON - Prices paid by U.S. consumers rose 0.3 percent in February, pushed higher by rising costs for gasoline and medical care. Excluding energy and food, core prices increased 0.2 percent, the same as in January.

The rise in the Consumer Price Index followed a 0.5 percent gain in January, when energy costs increased the most since the war in Iraq, the Labor Department said yesterday. Core prices were 1.2 percent higher in the 12 months that ended in February.

The Consumer Price Index is the government's broadest gauge of costs for goods and services. Almost 60 percent of the index reflects prices consumers pay for services, ranging from medical visits to airline fares and movie tickets.

Crude oil futures rose to the highest level since the 1990-1991 Persian Gulf war after an Energy Department report showed gasoline inventories fell last week to the lowest level since late November. Gasoline for April delivery on the New York Mercantile Exchange rose to the highest since May 2001.

"When energy prices are increasing, that is always a problem for disposable income," said Edward F. McKelvey, senior economist at Goldman Sachs & Co. in New York. "It makes it harder to increase spending on other items."

Consumer confidence in the economy fell in February by the most since before the Iraq war, the Conference Board reported last month. A 14-point decline to 87.3 was the largest since February 2003 and also reflected job worries. The ABC News/Money Magazine consumer confidence index fell to minus 22 last week, the lowest since May; readings below zero indicate the number of negative responses exceeded positive responses.

Economists had expected a 0.3 percent increase in the Consumer Price Index. Core prices were forecast to rise 0.1 percent.

Crude oil for April delivery rose 70 cents, or 1.9 percent, to $38.18 a barrel at the close of floor trading yesterday on the New York Mercantile Exchange. Gasoline for April delivery increased 3.13 cents, or 2.8 percent, to close at $1.1577 a gallon.

Energy prices, which account for about a 14th of the index, rose 1.7 percent in February after rising 4.7 percent a month earlier. Gasoline prices increased 2.5 percent. The costs of heating oil, electricity and natural gas all rose in February. The cost of medical care increased 0.6 percent last month, the biggest rise since October 2002, after a 0.2 percent increase.

Earnings, adjusted for inflation, fell 0.1 percent last month after rising 0.3 percent, the Labor Department said separately. The lack of new hiring restrains wages and other compensation that account for about two-thirds of a company's costs. The lack of rising employee costs makes it easier for businesses to hold the line on prices.

Mortgage rates are holding at just above their lowest level in 45 years, giving a boost to housing and refinancing, a report from the Mortgage Bankers Association showed yesterday. The group's index of mortgage applications increased 25.6 percent last week to 1,117.1, the highest level since the week that ended July 18.

The cost of all goods including cars, apparel and food rose 0.5 percent last month and is 0.2 percent higher compared with February 2002. Food prices, which account for about a fifth of the index, rose 0.2 percent in February.

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