Inflation hits the family dinner table

Many of life's necessities are becoming more expensive.

Let's start with breakfast. Eggs: up 5.2 percent so far this year. Butter for your bread: up 62 percent. A glass of 2 percent milk to wash it all down: It may rise as much as 50 cents a gallon next month.

Time to head to work: filling up the gas tank now costs 30 cents a gallon more since January.

After more than a decade of quiescence, inflation is returning - eating away at family pocketbooks and rippling through almost every segment of the American economy.

The latest evidence came Thursday, when the government reported that the first quarter Gross Domestic Product grew at a steady 4.2 percent rate, but inflation virtually doubled: from 1.2 percent annually at the end of 2003 to 2 percent now.

The rate would have been much higher if it were not for some big-ticket items, such as automobiles and computers, which came down in price. In fact, in the category most families would relate to - food and gasoline - prices rose at a 5.3 percent annual rate.

Those numbers echo the more widely watched Consumer Price Index, which shows inflation running at 5.1 percent annually. Those are the highest numbers since 1990.

The inflationary pressures could well lead to the end of a historically low period of interest rates. Although no immediate rate hike is expected when the Federal Reserve meets next week, analysts believe inflation is reaching the point where the central bank will signal that it will increase rates early this summer. The stock market, anticipating such a move, has already been spooked in recent days.

"Yes, inflation starting to creep up, but still creeping," says David Wyss, chief economist at Standard & Poor's in New York. "It's time for the Fed to start thinking about it, but not panicking about it."

Consumer prices have started to pick up in particular in the past three months. Before that, US companies, facing competition from abroad, had absorbed most of the price increases.

Now, however, the dollar is weaker, and Asian economies are expanding. "The modest acceleration of price increases reflects the welcome revival of pricing power and not the beginning of a problematic inflation," says Clifford Waldman, an economist for the Manufacturers Alliance/MAPI in Arlington, Va.

Unlike other inflationary periods, economists say there are some unusual twists this time. The US economy is now more attuned to the global economy. Last year, for example, the prices of imports fell. So far this year "they are up 2 percent and probably going higher," says Robert Gay, chief economist at Commerzbank Securities in New York.

One reason for the higher import prices is rising inflation in China. The Chinese have become major buyers around the world of everything from scrap metal to waste paper. They're now buyers of one-third of all the aluminum produced in the world. "They don't have the margins to play with, so they are passing on their higher commodity prices to their exports," says Mr. Gay.

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