WASHINGTON, Oct 15 (Reuters): US consumer prices soared 1.2 per cent last month, the biggest gain in more than 25 years, as two big hurricanes led to a record surge in energy prices.
The storms also knocked down industrial output and dampened the spirits of US consumers, reports showed yesterday. The storm-driven climb in gasoline prices propped up retail sales outside of autos, which fell as buyer incentives wound down.
The increase in the consumer price index was the largest since March 1980, the US Labour Department said.
But outside of food and energy, prices were tame-rising a scant 0.1 per cent for the fifth straight month and offering hope that broad-based inflation could be averted.
The steep energy price rise has pushed overall prices up 4.7 per cent over the past year, the biggest jump since 1991.
A separate government report showed US retail sales rose a lower-than-forecast 0.2 per cent last month as car sales tumbled. Outside of autos, however, sales climbed a healthy 1.1 per cent, partly reflecting the big gain in gasoline prices.
US government bond prices initially rose on the mild rise in core inflation. But they later eased as analysts realised the data would not dissuade the Federal Reserve from raising interest rates to curb inflation.
The dollar slipped, while stock prices closed higher, bolstered by strong earnings from General Electric Co.
Much of the country's oil production and refining facilities were shut down by Hurricane Katrina, which slammed into the Gulf Coast on Aug 29. The sector was dealt a further setback when Katrina's weaker sister, Rita, hit on Sept 24.
The blow to the energy industry was evident in a report from the Federal Reserve that showed industrial production plummeted 1.3 per cent last month, the biggest drop since January 1982.
The Fed said the two devastating storms likely cut output by about 1.7 percentage points, while a strike at aircraft maker Boeing Co sliced off another half-point-implying production otherwise might have risen a robust 0.9 per cent.
Consumer spirits-if not their shopping habits-were also dealt a blow by the storms and related gas-price surge.
The University of Michigan's preliminary index of consumer sentiment fell unexpectedly in early October to its lowest in 13 years, extending a September decline, according to sources who saw the subscriber-only report.
The survey also showed consumers expecting a heightened level of inflation over the coming year. One-year inflation expectations, which had jumped from an annualised 3.1 per cent to 4.3 per cent in September, reached 4.6 per cent this month. But longer-term inflation expectations held steady.
Rising inflation expectations have troubled Fed officials, who are bent on ensuring that a self-feeding inflationary psychology, in which businesses press hard to recoup costs and workers are strident in wage demands, does not take root.
The Fed, which raised benchmark overnight interest rates by a quarter-percentage point to 3.75 per cent on Sept 20, has signaled further rates hikes are on the way.
The consumer price report showed energy prices leaped 12 per cent last month, the biggest advance on records dating to 1957. Gasoline prices, which hit a record high in the week after Katrina struck, jumped a record 17.9 per cent, while natural gas and fuel oil costs each rose more than 12 per cent.
Soaring energy costs have hit household pocketbooks hard, knocking inflation- adjusted average weekly earnings down 1.2 per cent last month, the Labour Department said.
Still, analysts said September retail sales showed shoppers largely undaunted, with sales outside of autos up 1.1 per cent.