Still the Economy, Stupid

Consumer Prices Rise in May

By Fred Barbash
Washington Post Staff Writer
Wednesday, June 14, 2006; 9:52 AM

The rising cost of energy and rent led consumer prices to another significant advance last month, the Labor Department reported today, reinforcing expectations that the Federal Reserve will jack up key interest rates again this month as it continues efforts to get a grip on inflation.

On a seasonally adjusted basis, the Consumer Price Index, the broadest gauge of the cost of living, advanced 0.4 percent in May. Energy led the way with a 2.4 percent surge.

Excluding energy and food, "core" prices rose 0.3 percent during May and 3.8 percent over the past three months.

The figures surpassed many projections by economists. The three-month increase represents the most rapid rise in inflation in a decade.

The numbers were also outside the "comfort zone" for inflation recently stated explicitly by the Federal Reserve, which has boosted key interest rates to 5 percent in 16 successive increments. The Federal Reserves Open Market Committee meets again on June 28 and is widely expected to add another quarter percent to the rate.

The belief that inflation, and interest rates, will continue to rise over the next few months internationally has fueled a global retreat in stock market indices from New York to Tokyo, predicated on fears that this rising cost of money may generate across-the-board cuts in business spending and investment.

Yes, lower and middle class people are feeling the pinch and that's the reason why "wrong track" poll questions are getting increasing majorities.