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Inflation spikes with gas prices

Energy costs lead the charge in a worrisome uptick.

WASHINGTON - Led by higher gasoline prices, consumer inflation shot up in November by the largest amount in more than two years.

In a troubling juxtaposition, the rise in inflation is coming at a time when economic growth is slowing sharply under the weight of a steep slump in housing and a severe credit crunch.

"We are in store for a period of very weak if not recessionary growth and uncomfortably high inflation," said Mark Zandi, chief economist at Moody's Economy.com. "People are going to get hit with both a weaker job market and having to pay more to fill their gas tanks and buy groceries."

The Labor Department report Friday showed that its closely watched Consumer Price Index rose by 0.8 percent last month, the biggest increase since September 2005, as energy prices jumped by 5.7 percent, reflecting a huge gain in gasoline.

Core inflation, which excludes energy and food, was also up last month, rising by 0.3 percent as the cost of clothing, airline tickets and prescription drugs took big jumps.

The bad news on inflation sent stock prices lower. Investors worried that rising prices will keep the Federal Reserve from cutting interest rates quickly enough to prevent a recession. The Fed uses lower interest rates to stimulate a weak economy and higher rates to slow growth and keep inflation in check.

The Dow Jones industrial average finished the day down 178.11 points, at 13,339.85.

[Last modified December 14, 2007, 23:21:33]