U.S. Inflation Rose More Than Forecast in July

U.S. consumer prices climbed more than forecast in July, reducing the ability of the Federal Reserve to lower interest rates should the economic slowdown deepen.

The consumer price index climbed 0.8 percent, twice as much as anticipated, the Labor Department said today in Washington. The cost of living was up 5.6 percent in the year ended in July, the biggest jump in 17 years. So-called core prices, which exclude food and energy, also rose more than projected.

The report may intensify the debate between those Fed policy makers that forecast inflation will slow and those concerned that price pressures will accelerate. Increases beyond food and fuel, including gains in clothing, airline fares and education, make it less likely that central bankers will be able to keep interest rates unchanged for long.

Still, commodity costs have retreated since mid-July, indicating the rise in total consumer prices may slow. Crude oil futures dropped as low as $112 a barrel this week after topping $147 last month. Regular gasoline, which reached a record $4.11 a gallon on July 17, has fallen about 8 percent, according to AAA.

Costs excluding food and energy increased 0.3 percent for a second month, exceeding the 0.2 percent median forecast of economists surveyed.

The core rate increased 2.5 percent from July 2007, the most since January, after a 2.4 percent year-over-year increase the prior month.

Separately, Labor reported that more Americans than anticipated filed first-time claims for jobless benefits last week.

Energy expenses jumped 4 percent, after a 6.6 percent gain in the prior month, today's report said. Gasoline prices increased 4.1 percent.

The consumer price index is the government's broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.

Food prices, which account for about a fifth of the CPI, gained 0.9 percent after a 0.8 percent increase in June.

The increases went beyond food and fuel. Clothing expenses jumped 1.2 percent, the most since 1998. The cost of an airline ticket rose 1.3 percent and education expenses climbed 0.5 percent for a second month.

Rents which, make up almost 40 percent of the core CPI, cooled. A category designed to track rental prices rose 0.1 percent, compared with a 0.3 percent gain in June.

Higher gasoline bills and tighter credit reduced automobile purchases in July, causing retail sales to drop for the first time in five months, government figures showed yesterday.

U.S. Inflation Rose More Than Forecast in July

TradingEconomics.com, Bloomberg
8/14/2008 6:22:27 AM