CPI hits 5-year high; pay fails to keep up

WASHINGTON — Surging energy prices pushed consumer inflation to a five-year high in 2005, outpacing average wage gains for most U.S. workers, the Labor Department reported Wednesday.

The department's consumer price index, a widely followed inflation gauge, rose 3.4 percent last year, the fastest rate since 2000, largely reflecting climbing prices for fuel oil, gasoline, natural gas and electricity, the department said.

However workers' average pay rose more slowly. Average hourly wages fell 0.5 percent and average weekly earnings declined 0.4 percent, after adjusting for inflation, in the 12 months that ended in December, the department said in a separate report.

Last year was the third year in a row in which real weekly wages fell, according to department data for the nation's 92 million private production and nonmanagerial service workers, who account for more than 80 percent of the work force.

"We're just not seeing the improvement in living standards you'd expect" in an economy that is expanding at a healthy pace and benefiting from rapid productivity growth, said Jared Bernstein, senior economist at the Economic Policy Institute, a think tank that focuses on labor issues. "It's the biggest problem in the current economy."

Meanwhile, Wall Street economists were encouraged that the department's report showed that consumer inflation remained tame outside of energy and food prices.

So-called core inflation rose 2.2 percent last year, suggesting that most businesses did not pass their higher energy costs on by raising prices for other goods and services.

"Record-high energy prices did not spill over into the rest of the economy," said Nariman Behravesh, chief economist at Global Insight, a financial-analysis firm.

The inflation report did nothing to change analysts' expectations that Federal Reserve officials will raise the benchmark short-term interest rate again at their meeting later this month to keep inflation contained.

The Fed is almost certain to nudge the rate to 4.5 percent from 4.25 percent at its Jan. 31 meeting, which will also be Alan Greenspan's last as Fed chairman.

And many analysts expect Fed officials to increase the rate at least once more at their subsequent meeting March 28, which probably will be led by White House chief economist Ben Bernanke, who is awaiting Senate confirmation of his nomination to be Greenspan's successor.

Because of dropping prices for energy, transportation and clothing last month, the CPI slipped 0.1 percent in December.

But the core CPI rose 0.2 percent, reflecting higher prices for housing, food, medical care, education and other goods and services.