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Oct 18, 2000 - 11:36 AM

Soaring Energy Pushes Consumer Inflation Up 0.5 Percent in September By Martin Crutsinger The Associated Press

WASHINGTON (AP) - Consumer prices jumped 0.5 percent in September, the biggest advance since June, as energy prices rebounded sharply. The worse-than-expected rise in inflation spooked Wall Street investors already worried about poor earnings performances. The increase in the Consumer Price Index, the government's most closely watched inflation gauge, followed a 0.1 percent decline in August, the first drop in 14 years, the Labor Department said in its report Wednesday.

In a second report, the Commerce Department said housing construction edged up 0.3 percent in September to a seasonally adjusted annual rate of 1.53 million units after having fallen by 0.1 percent in August.

Analysts viewed the tiny increase in the construction of new homes and apartments as a sign the economy was moderating, something the Federal Reserve has been seeking with a string of interest rate increases aimed at cooling off the red hot economy and keeping inflation under control.

However, Wall Street ignored the moderate housing report and focused instead on the jump in inflation, which called into question assumptions that the central bank will not raise interest rates further.

The Dow Jones industrial average plunged below the 10,000 level for the first time in six months. In late morning trading, the Dow was down 178 points after having been off more than 400 points right after the opening bell.

"While inflation is not yet out of control, there is a steady spreading and upward creep in the inflation rate that has to worry the Federal Open Market Committee," Joel Naroff, head of Naroff Economic Advisers in Holland, Pa., said of the Fed's chief policy-making group.

In both August and September, the CPI was dominated by energy movements. After falling by 2.9 percent in August, energy prices shot up 3.8 percent in September, the biggest advance since a 5.6 percent surge in June.

The big rise in energy, which consumers have felt in sharply higher prices for gasoline and home heating oil, prompted President Clinton last month to order the release of oil from the government's Strategic Petroleum Reserve.

While the steep increases have been mainly contained in the energy sector, economists are worried about a spillover effect that could send overall inflation higher, setting off alarm bells at the Federal Reserve.

For the year, consumer prices are up 3.8 percent, a sharp increase over the 2.7 percent rise in 1999.

Because of the higher inflation, the Social Security Administration announced Wednesday that the 45.2 million Americans getting Social Security checks will see their monthly benefits go up by 3.5 percent next year, the biggest cost-of-living adjustment since 1992.

The "core" inflation rate, which excludes the volatile energy and food sectors, was up 0.3 percent in September, the biggest advance since a 0.4 percent rise in March. Since that time, core prices have been rising 0.2 percent each month.

Core inflation for the year is climbing at an annual rate of 3.8 percent, compared to an increase of 2.7 percent in 1999.

The Fed has already raised interest rates six times over the past 14 months in an effort to slow the supercharged economy to a more moderate pace and keep inflation under control.

Economists had thought the central bank may be finished with its tightening moves because of signs that growth has begun to slow. But some analysts are predicting that the surge in energy costs, if it breaks out in other areas of the economy, will force the central bank to boost rates further.

For September, the 3.8 percent rise in energy costs reflected a 5.4 percent jump in gasoline prices, the biggest increase since 8.8 percent in June.

Home-heating-oil costs were up 12.2 percent in September, the biggest rise since last February, while natural gas was up 5.1 percent and electricity prices were up a slight 0.1 percent.

Food costs edged up 0.1 percent in September with beef and poultry prices down while vegetable and fruit prices showed gains.

Medical costs, a big factor in this year's acceleration of price pressures, rose 0.4 percent, the same gain recorded in August.

Tobacco prices, which have been pushed up by the cost of expensive liability settlements, rose 3.5 percent, the biggest gain since April.

http://ap.tbo.com/ap/breaking/MGAS35A6HEC.html

-- Carl Jenkins (Somewherepress@aol.com), October 18, 2000