U.S. Consumer Prices Surge 0.8% in July

Aug. 14, 2008
Much higher than expected increase of 0.4%

The Labor Department reported on August 14 that U.S. consumer prices surged by a more-than-expected 0.8% in July compared with the prior month. Core prices, which strip out volatile energy and food costs, rose 0.3% last month.

Most analysts had predicted a tamer gain of 0.4% in headline inflation and a 0.2% rise in core inflation.

Although headline inflation cooled from a June reading of 1.1%, it was higher than anticipated as high energy oil prices continued to buffet the U.S. economy. The report showed that inflationary pressures continued to squeeze the world's largest economy, but Federal Reserve policymakers might be pleased to see a moderation in headline inflation.

Economists said that it does appear that inflationary 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.

On a 12-month basis, consumer prices rose 5.6% in July, marking the biggest annualized gain since January 1991, while the core rate was 2.5% higher. The core rate's gain was the most significant since February 2007.

Energy costs contributed to the increase in inflation during July, rising 4% compared with 6.6% in June. Gasoline prices climbed 4.1% while natural gas costs jumped 7.4%.

Food prices, which increased 0.9%, also stoked inflation, picking up momentum a notch compared with a 0.8% gain in June.

Copyright Agence France-Presse, 2008

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