Consumer Prices Twice As High As Expected

Fed Faces Tough Decision On Interest Rates As Inflation Posts Biggest 12-Month Gain Since 1991

(AP)  U.S. consumer prices shot up in July at twice the expected rate, pushed higher by surging energy and food costs. The latest surge left inflation running at the fastest pace in 17 years.

The Labor Department reported Thursday that consumer prices rose by 0.8 percent last month, twice the 0.4 percent gain that economists had been expecting.

It marked the third straight month of oversized inflation increases following jumps of 0.6 percent in May and 1.1 percent in June. And it leaves inflation rising by 5.6 percent over the past year, the biggest 12-month gain since January 1991.

Core inflation, which excludes volatile food and energy costs, rose 0.3 percent in July, slightly higher than the 0.2 percent increase that economists had expected. For the past 12 months, core inflation has risen by 2.5 percent, the highest 12-month change since February.

The inflation surge presents a major problem for the Federal Reserve: Will inflation force it to start raising interest rates even as the economy struggles to avoid a recession?

The big rise in inflation left consumers even more squeezed. The Labor Department said that average weekly earnings, after adjusting for inflation, fell by 3.1 percent in July compared to a year ago, the biggest year-over-year decline since November 1990.

The Labor Department also reported that the number of newly laid off workers filing for unemployment benefits fell by 10,000 last week to 450,000. The decline was less than expected and showed the labor market remains under severe stress from the weak economy. The four-week average for claims rose to the highest level in six years.

On Wall Street, stock futures took a tumble after the report on worries about inflation.

The 0.8 percent rise in consumer prices reflected big increases for energy and food, a pattern that has been happening for months.

Energy prices jumped by 4 percent last month, driven upward by a 4.1 percent rise in gasoline prices. In July prices at the pump were 37.9 percent above where they were a year ago.

There could be some relief on the way, however, as gasoline prices, after hitting a record at $4.11 per gallon in mid-July, have been falling in recent weeks. They now average nationwide around $3.79 per gallon, according to the survey by auto club AAA and the Oil Price Information Service.

Crude oil prices are also down about $30 per barrel from a peak in early July and analysts are hoping that this decline will help relieve some of the pressures on energy costs.

Food costs shot up by 0.9 percent in July, reflecting higher costs for a wide variety of food products. Over the past 12 months, food prices have risen by 6 percent, reflecting surging commodity prices. The Agriculture Department reported this week that this year's corn and soybean harvests will be among the largest in history, though, easing fears that had been fueled after heavy flooding in the Midwest in June.

The core inflation figure was driven higher by a big 1.2 percent jump in clothing costs, the biggest increase in this area since August 1998. Airline ticket prices, which have been surging because of higher fuel costs, jumped another 1.3 percent in July.

[lewiston14]

BobNjersy: He did not say he got rid of anybody yet. We dont know what type of small business is being talked about. The number three I think is just an example of what could happpen to any small business. Anyway this mess is not going away anytime soon. Consumer spending is what brings things around this time the middle wage consumer is allready tapped out. So no help there. Respect Lew

[sparks224]

"The question is - when will wages go up?"
Posted by Bob5ford

Wages should never go up, they should always go down. This is one of the core principles of neo-conservative Republican thinking.

My question to you is:
Which Party did you vote for?

[bob5ford]

This is not news to anyone who has been a grocery store lately. The question is - when will wages go up?

[bob5ford]

This is not news to anyone who has been a grocery store lately. The question is - when will wages go up?

[bob5ford]

This is not news to anyone who has been a grocery store lately. The question is - when will wages go up?

[bob5ford]

This is not news to anyone who has been a grocery store lately. The question is - when will wages go up?

[bob5ford]

This isn''t news to anyone who has been a grocery store lately.

[bob5ford]

This isn''t news to anyone who has been a grocery store lately.

[bob5ford]

This isn''t news to anyone who has been a grocery store lately.

[bobnjersey]

[As a small business owner I really don''''t care if you raise my taxes but the three people I lay off and the extra work for my other seven employees will **** them all off.]
[Posted by mjvw2 at 08:01 AM : Aug 15, 2008]

so you have ten people working for you that could be done by seven? then why do you have ten?

you won''t be able to extract much more from the remaining seven if they are fully utilized. you''ll have less output ... which will produce less income ... which will affect you.

and if you do manage to drive them harder for the same wage ... they''ll be distant memories as soon as the market opens up and they can find a job elsewhere where they''re not overworked.

if your business requires no continuity in your workforce ... or has ''no-skill'' workers doing the tasks ... you''re stategy might work.