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US Economy Faces More Trouble Signs 

The struggling U.S. economy received a triple dose of sobering news Tuesday concerning inflation, the housing market and consumer confidence. From Washington, VOA's Michael Bowman reports.

The Labor Department reports wholesale prices rose by one percent in January, double the rate that many economists expected. Overall, wholesale prices have risen more than seven percent over the last 12 months, the fastest pace since the late 1970s. There are two main culprits, according to Mark Vitner, senior economist at the U.S.-based Wachovia Bank.

"We knew energy prices had popped back up, and that is clearly what happened here. Gasoline prices were up 2.9 percent. Food prices were up 0.8 percent. It is a really trying [difficult] environment," he said. "It is one of the reasons we are seeing consumer spending slow so much for discretionary items. Folks simply do not have as much money left over after paying for their basic necessities."

Speaking of consumers, the latest figures show consumer confidence in the economy plummeting. The New York-based Conference Board reports its confidence index down more than 12 points, from 87.3 in January to 75 this month. That is the lowest reading in five years.

Aside from rising food and fuel prices, economists say many U.S. consumers are feeling "poorer" as home values decline. A new report shows, on average, U.S. home prices fell nearly nine percent in the final quarter of last year, the sharpest drop in decades.

In recent months, the U.S. Federal Reserve has aggressively cut interest rates in an effort to spur a slowing U.S. economy. But Mark Vitner says that strategy could be undermined if inflationary pressures continue to grow.

"As soon as the financial markets are brought back to health, I think the Fed will focus entirely on bringing inflation back down. So today's low interest rates will probably not stay there very long," said Vitner.

Inflation, which tends to be spurred by economic expansion, usually subsides during periods of weak or negative economic growth. High inflation and low growth, a highly undesirable combination known as "stagflation," is something the United States has largely avoided since the 1970s, when disruptions in oil supplies constrained U.S. economic growth while stoking inflationary pressures.