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Gas prices help fuel inflation

Associated Press

WASHINGTON — Soaring costs for gasoline and other energy products fueled inflation at the wholesale level in August for a second consecutive month even before the impact of Hurricane Katrina was felt.

Meanwhile, the Commerce Department reported that the U.S. trade deficit in July improved slightly despite the fact that oil imports climbed to an all-time high and the imbalance with China also set a record.

The Labor Department reported that wholesale prices rose 0.6 percent last month following an even bigger 1 percent jump in July. Outside of energy and food, inflation pressures continued to be moderate with so-called core inflation showing no change in August, the best showing since a decline of 0.1 percent in June.

But economists worried that this benign inflation picture may change with a continued onslaught of higher energy costs, reflecting shutdowns in production in the Gulf of Mexico caused by Hurricane Katrina.

“Energy costs have yet to be passed through but that may be changing. Energy surcharges are being announced more frequently and that is not a good sign,” said Joel Naroff, chief economist at Naroff Economic Advisors, a private consulting firm.

The July trade gap fell by 2.6 percent to $57.9 billion from an imbalance of $59.5 billion in June, the second highest deficit on record.

Analysts believe the July improvement will be short-lived — given that oil prices continued to soar in August.

The inflation report showed that wholesale energy costs were up 3.7 percent in August following an even bigger 4.4 percent July rise. However, core inflation, excluding energy and food, was frozen in August, following a 0.4 percent July increase.

Helping to keep inflation moderate, food costs at the wholesale level dropped for a fifth month in a row while prices of new passenger cars decreased by 1.3 percent, the biggest drop in 13 months.

So far this year, the country’s trade deficit is running at an annual rate of $693.1 billion, far ahead of last year’s record imbalance of $617.6 billion. Economists believe the deficit will worsen even more in 2006 as soaring oil prices continue to transfer more U.S. dollars into the hands of foreigners.

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