Flooring News and Information

Washington, DC, Oct. 19—The Consumer Price Index rose by 0.4% last month, the largest increase since May, according to the Labor Department. The advance came after a 0.1% increase in August. The core rate of inflation, which excludes energy and food prices, rose in September for the third month in a row by 0.2%, suggesting that most other prices are under control.

To stabilize the tottering economy, the Federal Reserve has cut interest rates nine times this year, with two of those reductions coming after the September 11 attacks. One of the reasons the Fed has been able to act so aggressively is because inflation has not been a problem.

Given the tame inflation environment, the more than 50 million Social Security recipients will get a smaller, 2.6% cost of living increase in their monthly checks next year. That will mean an extra $22 a month for the average retiree. Last year, they got a 3.5% boost, a nine year high.

While economists are hopeful that prices will remain stable in the aftermath of the attacks, some worry about price spikes, especially for energy products. Others are concerned that the Fed's credit easing to support the economy could sow the seeds of inflation down the road.

During the first nine months of this year, consumer prices rose at an annual rate of 2.8%, compared with an increase of 3.4% for all of last year. One of the reasons inflation is more subdued this year is because energy prices have been easing after spiking last year. After posting double digit increases in both 1999 and 2000, energy prices for the first nine months of this year increased at an annual rate of just 0.4%. But in September, energy prices rose by 2.6%, after falling by 1.9% in August. Energy prices rose immediately after the terror attacks but then began falling quickly.

Virtually all of the increase in energy prices last month reflected a jump in gasoline prices, which rose by 8.6%, the largest advance since June 2000. More recently, gasoline prices have fallen as Americans have trimmed travel and crude oil prices have eased in the face of a global economic slowdown. Prices for natural gas and electricity, however, fell in September by 5.5% and 0.6%, respectively.

Food prices rose for the second month in a row by 0.2% in September, reflecting higher prices for vegetables, fruits and pork. Those higher prices blunted lower prices for other items. Housing costs fell by 0.2% in September, the first decline since February 1986 and the biggest drop since December 1982. Airlines fares fell by 0.7% in September and new car prices were flat.