WASHINGTON — The price of a quart of milk, a plane ticket and a host of other products rose in June at nearly the fastest pace in a generation, taking an even bigger-than-expected bite out of the buying power of Americans.
In the latest shock wave to hit the economy, consumer prices rose 1.1 percent in June from the month before, far faster than the expected rate of 0.7 percent and almost double the reading from May, the Labor Department said Wednesday.
The only time in the past quarter-century that monthly inflation has been that high was in September 2005, when prices jumped 1.3 percent, mostly because Hurricane Katrina shut down oil refineries and energy prices spiked.
Consumer prices are up 5 percent over the last 12 months, the fastest one-year change since 1991.
As prices rose last month, take-home pay took a hit. Adjusting for inflation, weekly wages fell 0.9 percent in June, the third straight monthly decline and the biggest drop in almost four years.
The news was the back half of a one-two punch on inflation. On Tuesday, the Labor Department reported that prices at the wholesale level were rising by the highest annual rate in 27 years.
The soaring prices come as economic growth is slowing, battered by a dismal housing sector, constricted financial markets and a labor market that is shedding an average of 94,000 jobs a month this year. The double whammy of high prices and sluggish growth leave the Federal Reserve with few good options.
After cutting rates for nearly a year to buoy economic activity, the Fed in June voted to hold a key rate at 2 percent. During internal debate at that June 24-25 meeting, Fed governors and regional bank presidents said their next policy change "could well be an increase in the funds (interest) rate" given rising inflation pressures, according to minutes of the meeting released Wednesday.
The "timing and magnitude of future policy actions was quite unclear," according to the minutes.
Since that meeting, the financial outlook has deteriorated on many fronts. The federal government last week took over lender IndyMac. The Treasury and the Fed have stepped in with an emergency plan to bolster mortgage giants Fannie Mae and Freddie Mac. Investors have fled the firms' stock as foreclosures have mounted, though shares of both were up sharply Wednesday as part of a broader rally in financials.
Federal Reserve Chairman Ben Bernanke told the House Financial Services Committee Wednesday that the Fed's next moves depend on how the economy unfolds.
"We're going to be responsive to conditions as they evolve," Bernanke said.
Economists are mixed on whether the Fed's next move will be a rate increase or a cut. Aggressive rate increases appear to be off the table "because this action destabilizes the economy," Paul Kasriel of Northern Trust said in an analysis. Central bankers must hope a slowing economy "will tame inflation, which is what the Fed expects," he said.
The Consumer Price Index, which came out Wednesday, measures not just what Americans pay for goods but for other purchases, including health care and haircuts.
Higher energy costs led the way, with a more than 10 percent rise in gas prices. More expensive vegetables, dairy and beef pushed up food costs.
Core inflation also risesCore inflation, the figure that excludes energy and food to measure other costs, rose by 0.3 percent in June, the fastest rise since January. Airline tickets grew almost 5 percent more expensive, the biggest rise since the summer of 2001.
The report illustrates just how quickly prices are rising — not that the economic squeeze is anything new to most Americans.
Marsha Marvel, 45, an elementary school reading specialist from Springfield, Ill., said she had created a weekly household budget to hold down expenses and the family was cutting back on trips and restaurant meals to save.
"This summer, I feel like I'm paying $10 into my gas tank every day, so we've really had to change our budget," she said. "We're just watching our money so much more closely."
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