preview.tinyurl.com/5frn2e -> www.marketwatch.com/news/story/consumer-prices-mark-biggest-on-year/story.aspx?guid={BBCF3648-7A64-4B14-B556-C6CE11290825}
Over the past year, consumer prices were up 56%, the biggest on-year increase since January 1991. The core consumer price index, which measures retail-level inflation after excluding volatile food and energy prices, rose 03% for the second straight month.
Coming in much worse than anticipated, the red-hot reading seemed certain to swell the chorus of critics urging the Federal Reserve to raise interest rates to quell inflation. Economists had predicted that the seasonally adjusted CPI would rise 05% on month and that the core CPI would increase 02%, according to a survey by MarketWatch.
"The Fed is still facing substantial inflation risk despite the start of what might be a correction in commodity prices," wrote Mike Englund, chief economist for Action Economics. "Soaring prices are clearly draining household spending power in real terms," Englund said. The inflation report helped depress US stocks at the opening, while bond prices rose.
The core CPI has risen 25% in the past year, and has increased at a 35% annual rate in the past three months. The CPI had moved 11% higher in June, with the core rate up 03%. So far, Fed officials, with a few vocal exceptions, have stuck to their forecast calling for inflationary pressures to moderate as the economy slumps. Wages, a key linkage in any inflation spiral, have remained stagnant. "Fed officials cannot ignore these price increases, but they have time to wait it out," wrote Stephen Gallagher, economist for Societe Generale. August looks better CPI for August should be much cooler, as petroleum and gasoline prices have fallen significantly since mid-July. "We have rising conviction that inflation readings for August, and now even September, will be more favorable thanks to the sustained trend in retail gasoline and natural gas prices," Gallagher said. "Moreover, many food basics are posting declines in the wholesale market, a trend which will soften food price gains for consumers." Retailers won't find it easy to maintain higher prices for clothing and recreation services, Gallagher said. Adjusted for inflation, real weekly earnings dropped 08% in July and are down 31% in the past year, the second fastest decline in 26 years. In the past three months, real weekly earnings were falling at a 94% annual pace. The purchasing power of the typical worker has now fallen back to 1998 levels, despite a 29% increase in productivity over that period. Some good news There were just a few bright spots on the inflation front in July.
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