High energy costs hike consumer prices in July; inflation up
The inflation rate, at 5.6%, is the highest in 17 years, a Labor Department report says.
WASHINGTON -- Consumer prices took another sharp jump last month with high energy prices fueling a 0.8% monthly increase -- nearly double analysts' predictions -- and chalked up a 12-month inflation rate of 5.6%, the highest since 1991, the Labor Department reported today.
Optimists pointed out that the July numbers were based on data collected in the first three weeks of the month, reducing the effect of declining oil and gas prices toward the end of last month.
"Energy prices do seem to be coming down a bit. So I'm hopeful that going forward we won't see as much of an increase," said UCLA economist Lee Ohanian. "That decline will translate into lower gasoline prices and lower prices across the board."
But pessimists noted that the core inflation rate -- which excludes prices for fuel and food -- still rose 0.3% for the month and that those increases were seen in many different sectors of the economy.
Ken Beauchemin, U.S. economist at Global Insight, an economic forecasting firm in Lexington, Mass., said that a broad-based increase in inflation would increase pressure on the Federal Reserve to raise interest rates despite the ongoing economic slowdown.
"Now that the tidal surge in energy and other commodity costs is showing unmistakable signs of turning up in consumer prices at large, the Fed finds itself pushed further into the corner," Beauchemin said. "The recent report on retail sales coupled with today's report indicates that a dip in real consumer spending is now underway."
Joel Naroff of Naroff Economic Advisors said that other economic indicators released today were equally worrisome. The Labor Department also reported that workers' average weekly earnings declined by 0.8% in July and 3.1% over the last year, even after adjusted for inflation. And the government reported that unemployment claims remained high, with 450,000 workers filing new claims last week, just 10,000 fewer than a week before.
Consumer spending accounts for two-thirds of GDP, Naroff said.
"Consumers are trying to scrimp and save, and they have to because their incomes are not going up," Naroff said. "In fact, they are not even running in place. They are moving backward."
Stock prices on Wall Street fell somewhat in early trading on inflation worries before rebounding mid-morning.
maura.reynolds@latimes.com
