U.S. consumer prices jumped by one-point-one percent in June, the
second largest increase in prices in 26 years. The surge is largely
attributed to soaring energy prices, which rocketed upward by six
percent. Federal Reserve Chairman Ben Bernanke expressed concerns about
inflation and the overall economy during his second day of testimony on
Capitol Hill. VOA's Cindy Saine reports from Washington.
The bigger than anticipated rise in prices is cutting deeply into consumers' buying power, with average weekly wages, adjusted for inflation, falling by zero-point-nine percent. The surge in energy costs is also trimming business spending and hurting economic growth.
Speaking to the House Financial Services Committee, Federal Reserve Chairman Ben Bernanke said inflation is a threat to hopes for an economic recovery.
"Inflation has remained high, running at nearly a three-and-a-half percent annual rate over the first five months of this year, as measured by the price index for personal consumption expenditures. And, with gasoline and other consumer energy prices rising in recent weeks, inflation seems likely to move temporarily higher in the near term," he said.
Bernanke said consumers and businesses alike are likely to be cautious with their spending.
A Commerce Department report shows that Americans cut back on purchasing cars, furniture and restaurant meals last month as the cost of gasoline soared. Analysts say the current economic situation puts the central bank in a difficult position, because it may not dare to counter inflation by raising interest rates at a time when the U.S. economy remains weak, and global financial markets are under stress.
Asked at Wednesday's hearing if the U.S. economy is in a recession, Bernanke said that will be determined later by economists. But he said there is no doubt that many Americans are facing tough times right now. "Whether it's a technical reception or not is not all that relevant. It's clearly the case that for a variety of reasons families are facing hardships in terms of higher energy costs, declining wealth, all the things that you mentioned, so this is clearly a rough time," he said.
Despite the bleak forecast by Bernanke, U.S. stocks rallied late Wednesday. The Dow Jones industrial average climbed about two percent as oil prices declined slightly and Wells Fargo Company issued upbeat quarterly results, easing concerns about the banking sector.