WASHINGTON (AP) – Consumer prices shot up in June at the second fastest pace in 26 years with two-thirds of the surge blamed on soaring energy prices.
The Labor Department reported that consumer prices jumped 1.1 percent last month, much worse than had been expected. Energy prices rocketed upward by 6.6 percent, reflecting big gains for gasoline, home heating oil and natural gas.
The big rise in prices cut deeply into consumers' earning power with average weekly wages, after adjusting for inflation, dropping by 0.9 percent in June, the biggest monthly decline since 1984.
The 1.1 percent June price increase was the second largest monthly advance in the past 26 years, surpassed only by a 1.3 percent gain in September 2005 from a jolt to energy costs after Hurricane Katrina.
Separately, the Federal Reserve reported that industrial output rose 0.5 percent in June, the fastest pace in 11 months. The increase, the highest since a 0.6 percent gain in July of last year, reflected an end to an automotive production strike rather than any widespread strength in the economy.
The report on retail inflation followed similarly grim news on Tuesday that wholesale prices had shot up by 1.8 percent in June.
The news on inflation kept a lid on stock prices, which were trading mixed after one of the nation's largest banks, Wells Fargo, announced it would raise its dividend.
Federal Reserve Chairman Ben Bernanke told Congress on Tuesday that the Fed was concerned about the threats posed by rising inflation.
Bernanke said that the "upside risks to the inflation outlook have intensified lately, as the rising prices of energy and some other commodities have led to a sharp pickup in inflation and some measures of inflation expectations have moved higher."
Bernanke's comments underscored the bind the central bank is in, caught between a faltering economy that is struggling to overcome a prolonged housing slump and a severe credit squeeze, and the risk that inflation would move higher.
Many analysts believe that the central bank is likely to leave interest rates unchanged for the rest of the year out of concern that any tightening of credit policy could send the economy into an even worse tailspin.
Over the past 12 months, consumer inflation is up by 5 percent, the largest year-over-year gain since a similar 5 percent rise in May 1991.
Food prices also showed a big increase in June, rising by 0.7 percent, more than double the 0.3 percent increase of May. Vegetable prices shot up by 6.1 percent, the biggest increase in nearly three years.
Core inflation, which excludes energy and food, showed rising pressures too with an increase of 0.3 percent in June, up from a 0.2 percent gain in May and the biggest one-month rise since January.
This increase reflected a 4.5 percent jump in airline ticket prices, the biggest one-month rise for airline fares since March 2000.