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Rising Energy, Food Prices Hurt American Consumers

by Rajashri on August 16, 2008 at 2:58 PM
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 Rising Energy, Food Prices Hurt American Consumers

A US government survey released on Thursday showed that consumer price inflation surged by a more-than-expected 0.8 percent in July further hitting wallets in the country.

On an annual basis, the government's Consumer Price Index (CPI) -- a key barometer of price pressures -- leapt 5.6 percent to July, marking the biggest annualized spike since January 1991.

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Core prices, which strip out volatile energy and food costs, rose 0.3 percent in July from the prior month, the Labor Department said in a monthly survey.

The 0.8 percent jump in the CPI during July was double the expectation of most economists, while the rise in the core rate was a notch above most forecasts.
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And while consumer prices soared on an annual basis by the largest margin in 17 years, the core reading -- which rose 2.5 percent in the year to July -- marked its most significant gain since February 2007.

Inflation is troublesome for economic policymakers because price spikes can roil consumers' budgets forcing them to cut spending on non-essentials which can in turn dent wider economic growth.

The Federal Reserve could in theory hike interest rates to cool inflationary pressures, but its hands have been tied by a lingering housing market slump and a widespread credit crunch gripping the banking industry.

The report showed that inflationary pressures continue to squeeze the world's largest economy, but Fed policymakers might be pleased to see a moderation in headline inflation.

The monthly CPI rate, while higher-than-expected, cooled from a hotter June reading of 1.1 percent, and some economists believe inflation pressures could moderate further in coming months.

Although energy costs remain relatively high, oil prices have fallen dramatically in recent weeks with New York prices closing at 115 dollars a barrel Thursday, compared with record peaks over 147 dollars just last month.

The central bank, which opted to keep its main interest rate unchanged at 2.0 percent earlier this month, has said that it expects inflation to moderate later this year.

Economists said it does appear that energy-related price pressures are diminishing.

"Despite the jump in inflation readings for 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," said Stephen Gallagher, an economist at Societe Generale.

Energy costs stoked inflation pressures during July, rising 4.0 percent compared with 6.6 percent in June. The energy reading has risen sharply for three straight months.

Gasoline prices climbed 4.1 percent while natural gas costs jumped 7.4 percent.

Food prices, which increased 0.9 percent, also boosted inflation, picking up momentum a notch compared with a 0.8 percent gain in June as strong price gains were tracked on cereals and dairy products.

Clothing, transport and housing costs all rose relatively strongly during the month as well, however.

Clothing prices jumped 1.2 percent during July, marking the largest such spike since August of 1998. Analysts said part of the rise was likely due to retailers trying to pass increased costs on to consumers.

Some economists said that while oil prices have clearly weakened of late, price hikes in other sectors could continue driving inflation pressures.

"The real eye opener was the jump in clothing prices," said Joel Naroff, chief economist at Naroff Economic Advisors.

"One month is hardly a trend, but with import prices jumping, we may be now seeing apparel adding to inflation rather than restraining it. It is also a warning that we could be seeing price increases in other areas as the import cost rises spread through the economy," Naroff added.

Source: AFP
RAS/L
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