U.S. Consumer Prices Climb by the Most Since 2005

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The Consumer Price Index for All Urban Consumers (CPI-U) increased 1.0 percent in June, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The June level of 218.815 (1982-84=100) was 5.0 percent higher than in June 2007.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 1.1 percent in June, prior to seasonal adjustment. The June level of 215.223 (1982-84=100) was 5.6 percent higher than in June 2007.

The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) increased 0.8 percent in June on a not seasonally adjusted basis. The June level of 125.582 (December 1999=100) was 4.2 percent higher than in June 2007. Please note that the indexes for the post-2006 period are subject to revision.

CPI Report, June 2008

Need I even say more. Look, the Fed is between a rock and a hard place. Housing is a mess, the economy is in recession and inflation is high. To date the Fed has chosen to ignore inflation because it has not fed into the core, being concentrated in food an energy. But the core is rising and so is pipeline inflation as measured by the PPI yesterday.

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If this goes on any longer, the Fed will have to act by raising rates and then the markets would be in for a very bad ride.

Prices paid by U.S. consumers jumped in June by the most since 2005 on spiraling costs for fuel and food, intensifying the pressure on households struggling with falling home prices and the credit crunch.

The cost of living soared 1.1 percent, more than forecast, after a 0.6 percent gain the prior month, the Labor Department said today in Washington. Excluding food and energy, so-called core prices climbed 0.3 percent, also more than anticipated.

The figures underscore why Federal Reserve Chairman Ben S. Bernanke yesterday said inflation risks had “intensified.” The surge in energy costs has also trimmed consumer and business spending, hurting growth and making it less likely policy makers will boost interest rates to stem even bigger price increases.

“This is a problem for the economy; it’s even worse for the Fed,” said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania. “Inflation numbers are high enough that under different circumstances the Fed would be hiking rates. But given the state of the economy,” it can’t, he said.

Treasuries dropped after the report, with yields on benchmark 10-year notes rising to 3.87 percent at 9:41 a.m. in New York, from 3.82 percent late yesterday.

Bloomberg News, 16 Jul 2008

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Note: the CPI for All Urban Consumers (CPI-U) was running at 7.9% over the second quarter. Let’s see what GDP says. But, if the GDP deflator is any lower than 4 or 5%, you can cry “I doubt it” or something similar but more profane.

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