Almost everything that consumers spent money on last month — from food to electricity and gasoline — took a bigger piece of their paychecks.
Inflation in June rose at the fastest rate in 17 years, the government said on Wednesday, just a day after the chairman of the Federal Reserve warned that inflation posed a significant risk to the nation’s economic outlook.
The Consumer Price Index, which measures prices of a batch of common household products, rose 1.1 percent in June, the Labor Department said. That increase caps a year where inflation has surged to proportions seen by some as threatening the stability of the American economy. In the last 12 months, the price index has risen 5 percent, the biggest annual jump since May 1991.
The report reinforces what many economists, including those at the Fed, have warned about for months: Americans are being forced to pay significantly higher prices even as the job market weakens and big employers like General Motors are laying off thousands of employees.
“There’s not enough lipstick to put on this pig,” Richard Moody, an economist at Mission Residential, wrote in a note to clients. “No matter how one slices and dices,” he added, “the bottom line is that U.S. workers are falling farther and farther behind.”In June, inflation accelerated at nearly twice the rate in May, when the index grew 0.6 percent. It was the biggest monthly gain in the closely watched inflation indicator since September 2005.
Testifying for a second day on Capitol Hill, the Fed Chairman, Ben S. Bernanke, reiterated his concerns that inflation remained too high. “Upside risks to the inflation outlook have intensified lately,” Mr. Bernanke told lawmakers, “as the rising prices of energy and some other commodities have led to a sharp pickup in inflation and some measures of inflation expectations have moved higher.”
He said that it was a Fed priority to bring inflation “to an acceptable level consistent with price stability.”
“As we go forward,” Mr. Bernanke said, “my colleagues and I are going to have to see how the data come in and how the outlook is changing and try to find the policy that best balances those risks and best achieves our mandate of sustainable growth and price stability.”
The increase in Wednesday’s index largely stemmed from the record high price of crude oil, which has pushed up the price of gasoline by more than 10 percent last month alone. Energy prices rose by 6.6 percent and transportation costs accelerated by 3.8 percent.
Housing fuels and utilities cost 1.8 percent more in June than in May, and the cost of shelter also increased, by 0.5 percent.
Prices also rose for the cost of food (0.8 percent), tobacco (1.5 percent), and owners equivalent rent (0.3 percent).
Stripping out food and energy products, the so-called core index rose 0.3 percent last month, slightly more than economists had predicted. Core inflation is up 2.4 percent compared with June 2007.
The Fed has warned about higher inflation for months, although Mr. Bernanke has repeatedly said the nation does not face the runaway price gains of the 1970s.
The release on Wednesday of minutes of the Fed meeting from late June reflected the extent to which concerns about higher food and energy prices have worsened over the past month
Members of the Fed acknowledged that the economy faced “significant downside risks” to growth” while noting that “upside risks to inflation had increased.”
Because of the inflation worries, Fed officials at the meeting thought that the next move on interest rates would be higher.
“With increased upside risks to inflation and inflation expectations, members believed that the next change in the stance of policy could well be an increase,” the minutes said.
But one voting member, Richard W. Fisher, the president of the Dallas Fed, voted to increase the benchmark, arguing that inflation may to moderate in the manner expected by the other members. This week’s economic reports speak to the difficult situation faced by policy makers going forward. A measure of retail sales, released on Tuesday, showed that consumer spending has nearly stagnated, a sign that economic growth is slowing. But the Fed cannot lower interest rates without risking more inflation problems ahead.
The bleak report adds to the financial woes of the last week, which has seen the near-meltdown of the nation’s biggest mortgage finance companies and continued turmoil in the stock markets. Investors are also awaiting the release of minutes from last month’s Fed meeting, expected Wednesday afternoon.
In a separate report on Wednesday, the Fed said that industrial production rose 0.5 percent in June after slipping 0.2 percent in May, beating economists’ expectations.
Production increased among automobile and electronics manufacturers. Utilities, particularly those that provide electric power, also saw a rise in production. Capacity utilization ticked up slightly, to 79.9 percent from 79.6 percent in May.
“Manufacturing continues to underperform the general economy,” Daniel J. Meckstroth, chief economist of the Manufacturers Alliance, a trade group, wrote in a note. “The federal tax rebate checks may help people afford everyday items but it is not having much impact on housing, motor vehicles, industrial machinery and other big ticket industries.”
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