Business

Inflation takes ever-bigger bite

Wholesale inflation surged in July, leaving prices for the past year rising at the fastest pace in 27 years, according to government data released Tuesday.

The Labor Department reported that wholesale prices shot up 1.2 percent in July, pushed higher by rising costs for energy, motor vehicles and other products. The increase was more than twice the 0.5 percent gain that economists expected.

Core prices, which exclude food and energy, rose 0.7 percent. That increase was the biggest since November 2006 and more than triple the 0.2 percent rise in core prices that had been expected.

In other economic news, builders broke ground on 965,000 housing units at a seasonally adjusted annual rate last month – the weakest showing since March 1991 – as the housing industry continues to struggle with falling sales and rising mortgage foreclosures.

The bad news on wholesale prices followed a report last week that consumer prices shot up by 0.8 percent in July, leaving consumer inflation rising at the fastest pace since 1981.

The July price pressures reflected in part the big surge in energy costs during the month that pushed crude oil prices to a record of $147.27 per barrel and sent gasoline pump prices to an all-time high of $4.11 per gallon.

Crude oil prices have since fallen by more than $30 per barrel, raising hopes that the surge in inflation will soon abate.

But the price spikes in a number of areas in July raised concerns that the prolonged surge in energy prices was showing up more broadly throughout the economy.

Sal Guatieri, an economist at BMO Capital Markets, said he thinks inflation will remain high for another month or so but then start to decline, reflecting the decreases already seen in crude oil and other commodities.

Such a development would put the Reserve in a bind. The Fed would like to keep interest rates low to give a boost to the badly lagging economy, but Fed officials may feel pressured to raise rates in an effort to make sure inflation does not get out of control.

For July, wholesale energy prices jumped by 3.1 percent, following a 6 percent gain in June. That reflected big jumps in the price of natural gas, home heating oil and liquefied petroleum gas, which offset a 0.2 percent dip in gasoline costs.

Food prices rose by 0.3 percent in July after a 1.5 percent surge in June. Beef prices jumped by 7.4 percent, the biggest increase

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