WASHINGTON, 16 September 2005 — Gasoline prices that were soaring even before Hurricane Katrina struck pushed US inflation ahead swiftly last month, but outside of energy costs prices barely budged, the government said yesterday. Other reports showed the devastating storm led to the biggest jump in initial claims for jobless aid in nearly 10 years and offered mixed readings on factory activity in the post-Katrina economy.
The Consumer Price Index jumped 0.5 percent in August, but the core index, which strips out volatile food and energy costs, moved up just 0.1 percent, the Labor Department said. The benign core inflation reading, a touch tamer than expected on Wall Street, provided the latest sign that lofty energy prices had yet to spill over into other areas. But gasoline prices shot up to record highs in Katrina’s wake and economists warned faster inflation may lie ahead.
Prices for US government bonds fell and the dollar strengthened a touch as traders bet the data would do little to dissuade the Federal Reserve, which meets on Tuesday, from raising interest rates. Stocks struggled, with the blue chip Dow Jones industrial average up slightly at midday.
Some economists had speculated the Fed could pause next week in its more than yearlong campaign to boost borrowing costs, particularly with core inflation muted. But Fed officials have said rates are still to low for an economy facing only a temporary setback from the storm.
Futures markets are largely banking on an 11th consecutive quarter-percentage rate hike next week, which would take the benchmark overnight lending rate up to 3.75 percent.
“Overall, the damage from the hurricane on the economy is limited, and by November and December we will start seeing the positive effect on production from rebuilding,” said Michael Englund, chief economist at Action Economics.
The New York Federal Reserve said its index of New York State factory activity fell to 16.97 from August’s 23.04, but stronger than many on Wall Street had expected. However, the Philadelphia Fed’s index of Mid-Atlantic factory activity plunged to 2.2 in September from August’s 17.5.