US inflation hit a 17-year high last month, underscoring the pressure on Americans who face soaring gasoline and food costs while their job prospects dim and incomes shrink.
A series of bleak reports on Thursday spotlighted the dilemma faced by US Federal Reserve policymakers who have little room left to lower interest rates to help a weak economy and are hoping for price relief to avoid the need to raise rates soon to tame inflation.
The US Labor Department said the consumer price index rose 0.8 percent last month and jumped 5.6 percent year on year, the strongest 12-month advance since January 1991 when the first Gulf War was under way.
Costlier energy and food helped push prices up at double the rate economists had expected last month, but since then oil prices have begun to decline. Some analysts said last month might mark the worst of inflation pressures, but others noted the price gains hit a wide array of goods from clothing to airfares and cigarettes.
“The battering of consumers continues as prices are rising for just about everything,” said Joel Naroff, chief economist for Naroff Economic Advisers in Pennsylvania.
But he predicted the Fed wouldn’t lift rates soon because higher rates might further demoralize consumers.
The department also issued figures on real earnings that showed the toll rising prices were taking on consumers. Average hourly earnings, adjusted for inflation, fell 2.5 percent year-over-year last month, the biggest drop since late 1980.
There is some hope that prices for oil and commodities will keep declining and cause what has become a global inflation shock to ease its grip as industrialized economies in Europe and North America slow.
Core consumer prices, which exclude food and energy items, gained 0.3 percent in June and last month, and rose 2.5 percent last month on a year-over-year basis, a large enough rise to cause discomfort at the Fed.
“It is certainly above expectations here, but I think we’ve probably seen, for the near-term anyway, the worst of the inflation readings,” said Keith Hembre, chief economist for First American Funds in Minneapolis.
Even the White House conceded that the economy’s vigor had been drained and wouldn’t reappear for some time, casting a shadow over campaigning for November’s presidential elections.
“It will take some time for the economy to turn around, but we are confident in the long-term fundamentals and underlying strength of our economy to get us through this period,” White House Spokeswoman Dana Perino told reporters.
The US job market is also severely strained, adding to the burden on consumers who fuel two-thirds of economic activity through their purchases of goods and services.
In a separate report, the Labor Department said another 450,000 workers filed new claims for jobless benefits last week, down 10,000 from a week earlier but still at levels that are associated with recession.
In fact, a four-week moving average of new filings that is regarded as a better gauge of underlying labor trends climbed to 440,500 from 421,000 the week before.
With US housing markets in the worst slump since the Great Depression, home foreclosure activity increased 55 percent last month from year-earlier levels, a private research report said on Thursday .
The survey, compiled by the California-based research group RealtyTrac, said that foreclosure filings, including default, auction sale notices and bank repossessions, spiked 55 percent in the 12 months to last month.
On a monthly basis, foreclosure filings increased 8 percent last month, affecting 272,171 properties and accelerating from the 3 percent recorded in June.
“Bank repossessions, or REOs, continued to be the fastest growing segment of foreclosure activity in July,” said James Saccacio, RealtyTrac’s chief executive.
The national survey revealed that one in every 464 US households received a foreclosure filing during the month as housing market woes continued to plague the world’s largest economy.
The US’ housing market has been in a slump for more than two years, but some economists believe the market could stabilize by early next year.
Former US Federal Reserve chairman Alan Greenspan told the Wall Street Journal in an interview published on Thursday that he also expected the housing meltdown to ease next year.
“Home prices in the US are likely to start to stabilize or touch bottom sometime in the first half of 2009,” the former Fed chief said.
Home sales have been volatile in recent months, with sales falling 2.6 percent in June after rising 2 percent in May.
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