Confidence Plunges, Inflation Rate Soars

Martin Crutsinger
Associated Press
February 26, 6:26 pm ET

Consumer Confidence Plunges While Wholesale Inflation Rises at Fastest Pace in 26 Years

WASHINGTON (AP) — In more bad economic news, consumer confidence and home prices posted sharp declines while higher costs for such basics as food, energy and medicine left wholesale inflation rising at a pace unseen since late 1981.

The new reports Tuesday documented the latest in a series of blows to the economy as a prolonged housing downturn has pushed the country close to a recession.

The 1 percent January jump in wholesale prices was led by a surge in the prices of energy, food and prescription drugs and followed a report last week that consumer prices had risen by a bigger-than-expected 0.4 percent because of price pressures in the same areas.

Analysts warned consumers to brace for more bad inflation news with crude oil prices rising to records above $100 per barrel and with more evidence that the prolonged jump in energy prices is starting to break out into more widespread price problems.

Over the past 12 months, wholesale prices rose by 7.4 percent, the largest yearly gain since late 1981. Analysts warned consumers to brace for more bad inflation news with crude oil prices rising to records above $100 per barrel and with more evidence that the prolonged jump in energy prices is starting to break out into more widespread price problems.

Meanwhile, the New York-based Conference Board reported that its confidence index fell to 75.0 in February, down from a revised January reading of 87.3. The drop was far below what analysts had forecast and put the index at its lowest level since February 2003, a period that reflected anxiety in the leadup to the Iraq war.

A third report showed that home prices, measured by the S&P/Case-Shiller Index, dropped by 8.9 percent in the fourth quarter of last year, compared with the same period in 2006, the steepest decline in the 20-year history of the index.

“Home prices across the nation and in most metro areas are significantly lower than where they were a year ago,” said Yale University professor Robert Shiller, one of the index’s creators. “Wherever you look, things look bleak.”

Analysts said rising inflation, slumping home prices, a turbulent stock market and an economy flirting with a recession were all combining to rattle consumers’ nerves.

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