Inflation fastest in 17 years, rate climbs 5.6%

The annual inflation rate climbed to 5.6% in July — the fastest growing rate in 17 years, according to Labor Department figures released Thursday.

Consumer prices jumped 0.8% in July, nearly double the level economists expected. It follows June’s 1.1% increase.

The biggest culprit in inflation’s increase was energy costs, which jumped by 4% on a monthly basis and 29.3% annually. On a somewhat optimistic note, the latest July figures include data collected only from the first three weeks, and do not account for the most recent commodity price decreases, like those seen in oil and gas.

“Energy prices do seem to be coming down a bit. So I’m hopeful that going forward we won’t see as much of an increase,” said UCLA economist Lee Ohanian. “That decline will translate into lower gasoline prices and lower prices across the board.”

However, the core CPI, which excludes volatile food and energy items, still experienced a 0.3% and 2.5% annual increase. Economists expected a 0.2% increase.

The food index rose 0.9% in July after rising 0.8% in June. The price of cereal and bakery products climbed 12% and fruits and vegetables by 10.1%.

July’s inflation increase left consumers even more squeezed. The Labor Department said average weekly earnings, after adjusting for inflation, fell 3.1% in July compared to July of 2007 — the largest year-over-year decline since November 1990.

While many analysts expect the Fed to keep interest rates unchanged at 2% in their next meeting, the latest inflation numbers may give them pause.

The US Inflation Calculator provide a further glimpse on how the buying power of the dollar has changed over time due to inflation.

As just one example highlights, a basket of goods or services purchased in 1950 for $10 would today cost $91.27. That represents a 48 cent increase from just 30 days ago.

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