Consumer confidence plunges

WASHINGTON — In more bad economic news, consumer confidence and home prices posted sharp declines while higher costs for such basics as food and energy left wholesale inflation rising at the fastest pace in a quarter-century.

The new reports Tuesday raised the threat of a return of "stagflation," the economic curse of the 1970s in which economic growth stagnates at the same time that inflation continues racing ahead.

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.

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 to 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.

"There is no evidence that the recent collapse in consumer confidence is going to turn around any time soon," said Brian Bethune, senior economist at Global Insight. He said the drop in confidence will lead to a cutback in consumer spending that will trigger a brief recession in the first half of this year. And he cautioned that "severe negative dynamics" at present could make the forecast of a mild recession too optimistic.