US Inflation Highest in Almost Two Decades

phpQfG7o7.jpg

8-18-08, 9:57 am



Original source: MercoPress


The United States consumer prices rose by 5.6 percent in 2008 through July, the fastest inflation rate for almost two decades figures show. US Labor Department reported consumer prices rose 0.8 percent last month after jumping 0.6 percent in May and 1.1 percent in June. The July number was double what economists had predicted.

'We have not seen headline inflation this strong since the early nineties' said Bill Dunkelberg, chief economist at the US National Federation of Independent Businesses. 'There is going to be a huge amount of pressure brought to bear on policymakers to start to deal with the inflation problem'.

Energy prices in the last twelve months have advanced 30 percent and food 6 percent.

To combat inflation, the Federal Reserve typically raises interest rates in an effort to temper economic growth and thereby reduce demand for products and services. But that strategy may not be possible, at least for now. The US economy has recorded anemic growth for most of the past year, and fears abound that any clampdown on activity could send the economy into a full-blown recession.

David Weiss, chief economist at the US-based credit and financial research firm Standard and Poor's, says the Federal Reserve will likely resist the urge to raise interest rates in the short term.

'I think the economy is too bad for them to do that right now. But they will do it as soon as they feel safe in doing so' said Weiss said.

The Labor Department also reports that wages are not keeping up with inflation. When adjusted for inflation, average weekly earnings fell by more than three percent in July compared to a year ago, the biggest drop since 1990.

Reacting to the economic numbers, White House spokeswoman Dana Perino said the Federal Reserve remains committed to keeping inflation in check. She noted that gasoline prices have moderated in the United States in recent week.

In related news analysts Realtytrac said that more than 272,000 people in the US received a foreclosure notice in July, a rise of 55 percent on a year earlier.

Florida and California had the highest rate of foreclosures, figures showed.

In a further indication of the severe problems affecting the US housing market, more than 77,000 homes were repossessed in July. As a result of this increase, 17 percent of all homes for sale in the US are repossessed properties.

US mortgage giant Fannie Mae recently announced that it was opening new offices in California and Florida to try to increase the sale of foreclosed properties it owns. It is even considering selling them in bulk to investors.