By Jeffry Bartash, MarketWatch
WASHINGTON (MarketWatch) — U.S. consumers paid sharply higher prices for gasoline in August as an extended bout of low inflation was broken, at least temporarily.
The consumer price index jumped 0.6% last month to mark the biggest advance since June 2009, the Labor Department reported.
The bulk of the increase stemmed from a 9.0% gain in the gasoline index, which also rose by the fastest amount in more than three years. As a result, energy prices surged 5.6%, marking the first increase in five months
The cost of food rose at a much slower 0.2% pace on the month.
Despite the big increase in August, consumer prices have only risen 1.7% over the past 12 months. The low level of inflation made it easier for the Federal Reserve on Thursday to embark on a new round of billions of dollars in bond purchases meant to reduce interest rates and stimulate the U.S. economy.
Cost of gas
The cost of gasoline usually rises during the summer when more Americans take to the road for vacation. Political instability in the Mideast and stormy weather in the Gulf Coast, where most of the nation’s oil is refined, also contributed.
If the usual pattern prevails, though, prices should decline in the fall as gas stations switch to cheaper winter fuel blends.
The same reversal might not happen quickly with food prices. A severe drought in the U.S. damaged key crops, such as corn, are used in many consumer products. Food prices have climbed 2.0% over the past year and could go higher.
In August, the cost of fruits and vegetables climbed 0.5%, while the index for meat, poultry, fish and eggs rose 0.4%. The cost of non-alcoholic drinks fell.
Stripping out volatile food and energy costs, the so-called core rate of consumer price inflation rose a smaller 0.1%, below the MarketWatch forecast of a 0.2% increase.
Investors and the Fed pay more attention to the core rate because it gives a better idea of underlying inflationary trends.
Still, higher consumer prices would pose a problem in the U.S. if they persist. Americans are not seeing their wages increase very much and whatever extra they earn could get eaten up by higher inflation. That would slow consumer spending, by far the largest driver of economic growth.
Joel Naroff of Naroff Economic Advisors said “food and energy will continue to strip needed funds from household spending power. That is not good news as we need consumption to stay solid if growth is not going to falter further.”
In August, inflation-adjusted hourly wages of U.S. workers actually fell 0.7% — the biggest drop since June 2009 — because of the spike in consumer prices. Average paychecks saw no gain.
On the brighter side, consumers boosted spending for the second straight month, particularly on autos. Retail sales jumped 0.9% in August. Read about retail sales.
Yet spending cannot keep up that pace unless paychecks rise or more workers find jobs, economists say. Without faster consumer outlays, businesses would not be able to sell enough goods and services to justify new hires or boost investment.