By  on May 18, 2006

WASHINGTON — Inflation worries pounded Wall Street on Wednesday, and retail stocks joined in the sell-off.

The Dow Jones Industrial Average plunged 214.28 points on Wednesday to 11,205.61 following worries that inflation could be creeping into the economy, including the apparel sector, which has been in a long-term deflationary cycle. Higher prices on consumer goods could hit customer spending, squeezing the bottom line for merchants. Concerns have been exacerbated by spiraling gas prices, which are now hovering around $3 a gallon.

Investors pulled money out of the retail sector, driving Standard & Poor's retail index down 0.8 percent, or 3.73 points, to 455.86. Among the decliners were Sears Holdings, down 2 percent to $137.96; Wal-Mart Stores, off 2.2 percent to $46.84; Dillard's Inc., dipping 1.5 percent to $25.42; Target Corp., down 1.1 percent to $48.70; J.C. Penney Co., off 0.7 percent to $62.94, and Federated Department Stores, declining 0.7 percent to $72.85.

"It looks like a fairly red day, a lot of stocks are down," said Richard Jaffe, an equity analyst at Stifel Nicolaus & Co.

Still, Jaffe said firms tend to trade on their own successes or failures and pointed to Abercrombie & Fitch Co., which saw its shares jump 2.2 percent to $61.01 on a strong earnings report Tuesday.

Prices on all goods and services, as reported in the Labor Department's Consumer Price Index on Wednesday, increased a seasonally adjusted 0.6 percent in April, propelled by a 3.9 percent rise in the energy sector. Taking away volatile food and energy prices, the core CPI index increased by 0.3 percent.

"The news is not good," said Edward Leamer, director of the UCLA Anderson Forecast. "Those inflation numbers seem like they're more and more troubling."

The Federal Reserve Board, which raised its benchmark federal funds interest rate to 5 percent earlier this month, said it would be watching indicators, such as the CPI, to gauge whether further increases were needed.

"The Fed is between a rock and a hard place here," said Leamer. "The rate increase they've already put into place already killed off the housing market."

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