Inflation Rises to 5.6%, the Highest in 17 Years

The Labor Department reported inflation is now rising at its fastest pace since 1991 - an annual rate of 5.6 percent - as food and energy prices continue to surge.

Overall prices rose 0.8 percent in July after a gain of 1.1 percent in June, marking the fastest three-month rate of price increases since late-2005 when Gulf Coast hurricanes sent energy prices soaring. The price gains from three years ago were quickly reversed as hurricane clean-up proceeded; however, there are fewer temporary factors at work today.

Monthly increases were paced by a 1.7 percent gain in transportation costs including fuel prices that rose 4.1 percent. Household energy rose 3.8 percent in July.

Prices for apparel rose 1.2 percent last month and are now up 0.8 percent from year ago levels. Falling prices for imported clothing have been a key factor in historically low inflation over the last ten years, however, this seems to be reversing now.

Food prices rose 0.9 percent in July and are up 5.8 percent on a year-over-year basis.

The core rate of inflation, excluding food and energy, rose 0.3 percent and registered an annual increase of 2.5 percent. Non core inflation, food and energy only as shown in the chart below, is now up 15.5 percent from year ago levels.

The recent decline in the price of crude oil and other commodities should see energy prices dropping dramatically next month, putting downward pressure on the headline inflation figure; however, rising prices related to energy "pass-through" and the strength of the dollar are not likely to recede as quickly.

Comments

[sr9web:]

Bad for my food budget, good for reducing the real-dollar cost of my fixed payment mortgage. It's 5.6% less money value I am giving them this year, than last!

2008 Aug 15 01:45 AM

[mrpitchfork:]

The real inflation rate is closer to 17% over last year.. I'm sick and tired of being lied to by the government. The whole system needs all the viruses removed, all spyware deleted and then rebooted.. maybe a whole system reinstall may help...

2008 Aug 15 11:05 AM