Inflation Rate

WASHINGTON - Soaring energy prices punished ordinary Americans in May, triggering the highest run-up in inflation in six months and exceeding the expectations of economic forecasters, the government reported yesterday. Consumer prices rose 0.6 percent, as measured by the Labor Department's Consumer-Price Index. Prices have risen by 4.2 percent, slightly above the 4.1 percent rise in prices for last year. Those annual numbers reflect the rise in all prices across the economy, and don't necessarily capture the pain that many Americans are feeling at the cash register.

Early this week, I recommended that you hurry up and buy inflation-linked U.S. savings bonds - I bonds - before the U.S. Treasury set the new interest rate on them. That was better advice than I could have possibly known. The Treasury Department released the new rate on I bonds yesterday. If you bought an I bond before yesterday, you'll get a better return on the investment over time. But if you're still waiting to buy, well, you might not want an I bond at all now. I bonds have two rate components: an inflation rate that changes every six months based on the Consumer Price Index, and a fixed rate that doesn't change for the life of the 30-year bond.

Last month, an economist in this column was quoted as saying that most retirees should have a significant portion of their portfolio in TIPS. Since then, readers have called and written to find out more, and where to buy them. There's a lot to like about TIPS, or Treasury Inflation-Protected Securities. They're issued by the government, so there's no credit risk. They pay out interest twice a year. And, best of all, they adjust your principal periodically to keep pace with inflation. Inflation isn't the top worry for Federal Reserve policymakers now, but it's a concern for retirees.

Fill up your gas tank or buy a gallon of milk, and you can't help but think that the inflation rate that comes out each month doesn't reflect the pounding your wallet is taking. That's Lois' complaint. The Baltimore County retiree's pension and Social Security benefits are pegged to the Consumer Price Index. This year, for instance, her Social Security benefits will go up 2.3 percent. Yet the price of one of her prescription drugs has shot up 50 percent in the past five months. "Every time I buy milk, it's gone up. Bread is almost $3 for a loaf.

Merchants have always known that men are tighter with a buck than women. Women happily invest in making life beauteous and meaningful while men skulk around in their grandfathers' sweaters, turning off unneeded lights. But the gender spender-gap may be growing. In recent months, companies selling to men have had a much harder time raising prices than those selling to women, says Merrill Lynch economist David A. Rosenberg. Aside from the anthropological implications, the findings suggest that you're better off owning stock in say, Tiffany and Talbots than Sony or Black & Decker.

Health insurance premiums for my wife, Georgina, and me went up almost 30 percent in 2006. For this year, they've already gone up 13 percent. For our homeowner's insurance plus windstorm coverage, the rise in premiums was 9 percent in 2006. Auto insurance went up 14 percent. (All these increases are without ever making a claim.) On more frequently recurring expenses, the tab is up, too. The monthly cable television bill, for example, is 13 percent higher for the same service. On a more modest scale, our average grocery bill was 4 percent higher in 2006 while we bought basically the same things.

SEOUL, South Korea -- The president of the Federal Reserve Bank of St. Louis said yesterday that U.S. inflation is too high and that the Fed may need to act should price increases accelerate. "Core inflation is modestly above what many of us have expressed as our comfort zone," William Poole told reporters in Seoul. "It's certainly my view that if the inflation rate continues to be persistent like that, the Federal Reserve will simply have to pursue" policies to keep inflation from growing.

WASHINGTON -- Federal Reserve Chairman Ben S. Bernanke warned yesterday that rising oil prices threaten to drive up inflation even as they slow the economy, raising the specter of the worst of all economic worlds: stagflation. Amid the uncertainty, he signaled that the Fed might be poised to end two years of steady interest rate increases as early as this spring. "At some point in the future," Bernanke said in testimony before the congressional Joint Economic Committee, the Fed "may decide to take no action at one or more meetings."

With inflation heating up, at least in the short term, it's good to remember an inflation-protected investment that's readily available to small investors - the I bond. This United States savings bond promises a rate of return over and above the rate of inflation. The bond's interest rate is adjusted twice a year, and currently pays 4.8 percent. The next adjustment comes in November. Depending on how much tweaking the U.S. Treasury does, the I bond's interest rate could go up to 6.9 percent, predicts Dan Pederson, author of Savings Bonds: When to Hold, When to Fold, and Everything In-Between.

Whether the housing market - or specific markets - are in a bubble is a matter of intense debate. But what's clear is that housing prices continue to appreciate, in many cases sharply, around the country. The latest data from the Office of Federal Housing Enterprise Oversight show that the average U.S. home price increased 12.5 percent in the 12 months ending March 31, with prices in every state showing at least a 4 percent gain, which outstripped the 3.1 percent inflation rate during that period.