Inflation Tame Despite High Energy Prices

Consumer prices jumped sharply in September, recording their biggest increase in more than 25 years. Soaring energy costs fueled most of the increase. But other signs suggest the steep rise in fuel prices isn't spreading to the rest of the economy — at least not yet.

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MICHELE NORRIS, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

ROBERT SIEGEL, host:

And I'm Robert Siegel.

Consumer prices jumped sharply last month, recording their biggest increase in more than 25 years. Soaring energy costs fueled most of the increase. But as NPR's Frank Langfitt reports, the run-up in energy prices is not spreading to the rest of the economy, at least not yet.

FRANK LANGFITT reporting:

Prices rose 1.2 percent in September, the biggest jump since the Carter administration. Driving that increase were Hurricanes Katrina and Rita, which tore up energy facilities along the Gulf Coast. But other than food and energy, prices in the rest of the economy rose a modest 1/10th of a percent.

Mr. JIM GLASSMAN (Senior Economist, JP Morgan Chase): It's telling us that we're not really seeing the inflation danger that everybody has been fearing.

LANGFITT: That's Jim Glassman, senior economist at JP Morgan Chase in New York. Glassman says the small increase in prices, other than food and energy, shows that most companies are not passing on high fuel costs to consumers. And he says much of that has to do with competition. Take the airline industry. Low-cost competitors are helping keep fares low, despite high fuel costs. And competitive pressure on prices is not just at home.

Mr. GLASSMAN: The competition goes beyond our shores. We're getting competition from all around the world. We've got a lot of companies making products in East Asia, bringing it back here. So raw materials costs may be up and energy prices may be up, but labor costs are very low.

LANGFITT: Another factor: Consumers are spending so much for fuel, they're reluctant to spend more on other things. Again, Jim Glassman.

Mr. GLASSMAN: The retailers are going to have a hard time pushing that through to the customer because if I'm paying more for energy bills and I have less available to buy products, a lot of retailers are going to have to ramp up the incentives to get customers into the store.

LANGFITT: Economists hope that if energy prices ease, the nation could avoid an inflationary cycle. Lynn Reaser is an economist with Bank of America.

Ms. LYNN REASER (Economist, Bank of America): We're seeing production facilities slowly come back online in the Gulf of Mexico. Inventories are starting to build. And, also, demand is beginning to ease somewhat; people are buying more fuel-efficient cars, and people are cutting back on those extra driving trips.

LANGFITT: Today's consumer price report showed energy prices jumped 12 percent in September, the biggest increase on records which go back to 1957. And Glassman predicts the nation's energy problems won't go away soon. He says when winter comes, homeowners are likely to suffer sticker shock when they see their first heating bills. Frank Langfitt, NPR News, Washington.

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