Gasoline pushes up inflation, could dent growth

Fri Sep 14, 2012 2:18pm EDT
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By Lucia Mutikani

WASHINGTON (Reuters) - A jump in the cost of gasoline pushed U.S. consumer prices up in August at the fastest pace in more than three years and squeezed spending on other items, threatening to further slow the already sluggish economy.

At the same time, production at the nation's factories, mines and utilities dropped by 1.2 percent, the biggest decline since March 2009, other data on Friday showed.

The sour mix of numbers was tempered by an unexpected increase in consumer sentiment in early September and signs underlying inflation pressures remained contained.

Economists said the reports helped justify the Federal Reserve's decision on Thursday to launch a third round of bond purchases to try to lower borrowing costs and spur growth.

"It's very clear the economy is soft and it doesn't look like there is any real underlying inflation pressures the Fed needs to worry about, so they are going to keep their foot on the gas for a long time," said Jeremy Lawson, a senior economist at BNP Paribas in New York.

The Consumer Price Index increased 0.6 percent last month, the first increase in five months and the biggest gain since June 2009, the Labor Department said.

Gasoline prices, which also recorded their largest increase since June 2009, accounted for about 80 percent of the rise.

With gasoline costs increasing, service station chalked up healthy receipts. A second report from the Commerce Department showed sales at gasoline stations shot up 5.5 percent last month, helping to push overall retail sales up 0.9 percent.   Continued...

Customers wait to be served at Casey's Market in Western Springs, Illinois, April 25, 2012. REUTERS/Jeff Haynes