Consumer prices up sharply, job market softens

WASHINGTON (Reuters) –

Consumer prices climbed at twice the

rate expected in July and job prospects kept softening last

week, according to Labor Department reports on Thursday that

pointed to swelling economic stress.

The department’s Consumer Price Index, the most commonly

used inflation gauge, rose 0.8 percent in July and on a

year-over-year basis jumped 5.6 percent, its strongest advance

since January 1991 when the first Gulf War was occurring.

Costlier energy and food helped push July prices up but,

since that time, oil prices have begun to decline and analysts

hoped that July might mark a watershed on inflation pressures.

“If we don’t get an unexpected shock that pushes commodity

prices back up, this might be the worst inflation news that

we’ll get for a while,” said Gary Thayer, senior economist with

Wachovia Securities in St. Louis.

Core consumer prices, which exclude food and energy items,

gained 0.3 percent in each of June and July and rose 2.5

percent last month on a year-over-year basis.

“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.

The dollar rose and Treasuries fell after the data but

quickly reversed course, with the dollar standing little

changed on the day and government bond prices higher. Stock

futures were lower.

U.S. job markets are 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 jobless claims

that is regarded as a better gauge of underlying labor trends

because it irons out week-to-week volatility, climbed to

440,500 from 421,000 the week before.

That was the highest reading for the moving average in more

than six years, since it hit 445,500 in April 2002.

The CPI report showed energy prices kept pushing higher,

rising 4 percent in July after a 6.6 percent June gain. That

put energy costs up 29.3 percent on a year-over-year basis, a

fact that motorists who pay 37.9 percent more for gasoline than

a year earlier know painfully well.

Food costs rose 0.9 percent following a 0.8 percent June

increase, putting them 6 percent above levels a year ago.

(Additional reporting by Ellen Freilich and Walter

Brandimarte in New York, Editing by Andrea Ricci)