Our economy is being "hammered'

WASHINGTON — Inflation is running at the fastest pace in 17 years, the job market is under further strain and foreclosure filings are surging.

A raft of gloomy economic data on Thursday was a setback for those hoping to see signs of better times ahead, and it could keep the Federal Reserve jammed between rising inflation and slowing growth.

The Labor Department reported that consumer prices shot up by 0.8 percent during July, double the increase that economists had expected. The rise was only slightly lower than the 1.1 percent surge in June, the second-highest monthly increase in the last 26 years.

The big gains left inflation increasing by 5.6 percent over the past year, the largest 12-month jump since the period that ended in January 1991.

Core inflation, which excludes volatile food and energy costs, rose 0.3 percent during July, slightly higher than the 0.2 percent increase that economists had expected. For the past 12 months, core inflation has risen by 2.5 percent, the highest 12-month change since February.

The biggest price pressures came in the energy and food sectors, just as they have all year. But the price gains spread to other areas, too — clothing costs jumped by the largest amount in a decade, airline fares rose sharply and the cost of hotel rooms and tobacco products also climbed.

”For the average American, these inflation numbers are very bad news. It means that their purchasing power has been cut and their wages aren't going very far,“ said Mark Zandi, chief economist at Moody's

The Labor Department said in a separate report that average weekly wages, after adjusting for inflation, fell by 3.1 percent during July compared with a year ago, the biggest year-over-year decline since November 1990.

Some economists said this might be the last truly terrible inflation report. Energy prices have been falling since hitting a peak last month and food prices are expected to moderate given reports of likely bumper harvests for corn and soybeans.

But other analysts worried the July price report could be a signal that inflation is not going to moderate quickly because the long surge in energy prices is now starting to spread to other sectors of the economy.

William Dunkelberg, chief economist for the National Federation of Independent Business, said the store and restaurant owners represented by his organization report that inflation is now their No. 1 problem.

”All of their costs are rising very quickly, and they are getting hammered,“ Dunkelberg said, noting that 42 percent of the businesses in the latest NFIB survey reported raising prices, the highest percentage in a quarter-century.

The Labor Department also reported Thursday that the number of newly laid off workers filing for unemployment benefits fell by 10,000 last week to 450,000. But that decline was less than expected and left the four-week moving average at the highest level in six years. The number of people receiving jobless benefits rose to 3.42 million, the highest level since November 2003.