Rising gas cost derails budgets

first_imgIt was the year John Lennon was slain, Mount St. Helens erupted and the U.S. Olympic hockey team pulled off the Miracle on Ice by beating the Soviet Union and going on to win gold. Not since 1980 has inflation risen so quickly from one month to the next. On Friday, the U.S. Department of Labor reported that the consumer price index jumped a whopping 1.2 percent in September from the previous month. Nearly all the increase came from a 12 percent surge in energy prices, reflecting a spike as gasoline briefly topped $3 per gallon in the wake of two Gulf hurricanes. No problem, said Wall Street: Core inflation, which excludes food and energy, barely budged. The Dow Jones industrial average rose 70.75 points, while the Standard & Poor’s 500 index and the Nasdaq composite index also gained. And although industrial production fell 1.3 percent in September, analysts chalked that up largely to the devastation wrought by hurricanes Katrina and Rita, not a broader economic downturn. September’s consumer prices in Los Angeles rose 1.3 percent from August, their biggest monthly gain in 23 years. They were up 5.2 percent annually. Housing and transportation costs were the biggest drivers of the increase, the government said. w=12 l=16Good job picture The most fundamental reason for optimism is the labor picture, said Mark Zandi, chief economist at Economy.com, a research firm in West Chester, Pa. “The job market is holding together well,” he added. “Outside of the Gulf Coast, businesses seem to be hiring as aggressively as they were prior to the storms.” But the squeeze on consumers is apt to get tighter. Natural gas prices are expected to jump by up to 90 percent this winter, when consumers use the fuel to heat their homes. Higher crude prices could lead to further price hikes because oil isn’t just used to make gasoline. It’s also a critical ingredient in making plastics and other products. “Average fuel prices are going to be higher than they have been in the recent past,” said Waco, Texas, economist Ray Perryman. “As petroleum works its way through the economy, we are going to see inflation that’s going to be a little bit higher than it has been in the recent past.” Annual inflation could rise to the range of 3.5 percent to 4 percent, Perryman said, instead of the 2.5 percent to 3 percent range that has been typical in recent years. In September, the consumer price index increased 4.7 percent over the preceding year, its fastest pace for a 12-month period since 1991. At the same time, however, core inflation was just 2 percent higher than a year ago. The economic outlook has the nation’s top business people worried. Chief executives’ confidence fell to its lowest level in four years, The Conference Board reported Friday. The group’s measure of CEO confidence fell 5 points, to 50, in the third quarter, its lowest ebb since the end of 2001, just after the Sept. 11 terrorist attacks and as the corporate scandals were unfolding. A reading of more than 50 points reflects more positive than negative responses. “CEOs’ confidence was already waning in the face of rising energy costs, and Hurricane Katrina has further exacerbated this situation,” said Lynn Franco, director of the Conference Board Consumer Research Center. “Confidence has fallen to a four-year low and will likely remain subdued for the rest of 2005.” Some measures of consumer confidence have improved recently. But the University of Michigan’s consumer sentiment index fell to its lowest level in 13 years in October. Rising energy costs are an obvious cause. Another reason is that wage increases have been lagging price hikes during most of this year. “The problem isn’t simply that families are facing higher prices, particularly at the pump,” said Jared Bernstein, senior economist at the liberal-leaning Economic Policy Institute. “It’s also that they’re facing lower wages. If wages were keeping pace with inflation, the pinch wouldn’t be as hard.” w=12 l=16Falling income The U.S. median income has fallen for five years in a row, according to the U.S. Census Bureau. That’s the longest such decline since officials started tracking those numbers in the 1960s, Bernstein said. “It’s unprecedented,” he said. “There is a large and growing gap between how the economy is performing and the living standards of the people stoking the engine.” Kathryn Robertson, 38, said she couldn’t agree more. Money has long been tight in her mobile home in Forestburg, Texas, where she lives with her husband, a hospital maintenance worker, and her three teenage children. Their combined income is about $1,200 a month, and skyrocketing gasoline prices have pushed their finances to the breaking point. “My family has gone from ‘Everything’s OK’ to ‘Oh, my gosh!”‘ she said. She estimates that her 1988 Jeep gets about 15 miles to the gallon, but she can’t afford a more fuel-efficient car. She’s behind on her rent. Her electric bill has gone up this year, and she’s bracing for further hikes in the coming months. She hasn’t paid her telephone bill in two months. As for food, “If it’s not Ramen noodles or macaroni, we pretty much don’t eat,” she said. “We have hot dogs once in a while.” Celebrating Thanksgiving is probably out, and the same goes for Christmas. Robertson’s family probably won’t even bother putting up a Christmas tree or buying a holiday ham. But the real question is whether she can keep her plans for a better future on track. Robertson is studying to become a special-education teacher, which she says would boost her up the economic ladder. But if energy costs keep rising, “it probably means I’m going to have to quit school,” she said. “That’s going to keep us right where we are.” For Mike Kennedy, a 45-year-old occasional professional surfer from Canoga Park, inflation has hit him in the worst possible place. When he stopped off at Scotland Yard, an English pub on Sherman Way, his bar tab seemed a tad higher. And, boy, was he suddenly mad about inflation. “Yeah!” he bellowed. “Beers are up 25 cents! They won’t cut me any slack!” 160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set! AD Quality Auto 360p 720p 1080p Top articles1/5READ MOREWalnut’s Malik Khouzam voted Southern California Boys Athlete of the Week Get real, said Main Street: Consumers don’t exclude energy and food from their monthly purchases. Soaring gasoline prices have torn through paychecks at the fastest rate in years. “My husband drives 80 miles a day, so higher prices really affect us,” said Sheila Martinez, a Woodland Hills bookkeeper. “We’re more cautious with our money. We hardly eat out now. I’d like to take my kids out more, but we can’t.” The report of rising inflation in September probably means the Federal Reserve will continue to boost interest rates, analysts said. On Sept. 20, the Fed raised rates for the 11th consecutive time, to 3.75 percent. Certainly, there are still plenty of signs of economic resilience. Not counting vehicle sales, overall retail sales are up 7 percent over the past year. That came even though spending at the pump has tripled, shaving about 2.5 percentage points off discretionary retail sales. last_img

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