Inflation Hit a 17-Year High

Inflation is running at the fastest pace in 17 years. U.S. consumer prices are up 5.6 percent over the past year, the largest year-over-year increase since the period ending in January 1991. Consumer prices jumped by 0.8 percent in July 2008, the Labor Department reported Thursday. The rise was only slightly lower than the 1.1 percent surge in June 2008 that had been the second-highest monthly increase in the last 26 years.

The core consumer price index, which excludes volatile food and energy prices, rose 0.3 percent for the second straight month. The core CPI has risen 2.5 percent in the past year, the highest 12-month change since February 2008.

The biggest price surges came in the energy and food sectors. The increases in consumer prices are not limited to energy and food as the high increases spread also to other areas; 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.

In July, energy prices jumped by 4 percent, driven upward by a 4.1 percent rise in gasoline prices, which last month were 37.9 percent higher than a year ago. Food prices jumped 0.9 percent in July. Over the past 12 months, food prices have risen by 6 percent, the biggest jump in decades.

Experts are likely to see a CPI retreat in August, versus these July highs, amid continued consumer weakness and falling energy prices.

The new inflation report puts the Federal Reserve in a difficult spot, caught between a desire to keep interest rates low until the economy shows signs of rebounding and the growing threat of inflation.

Sen. Charles Schumer, D-N.Y., noting the news on inflation, rising jobless claims, soaring mortgage foreclosures and falling real incomes, said, "If this administration were competing in the 'bad economic policy' Olympics, they'd receive four gold medals today."

These inflation numbers are very bad news for the average American as high inflation reduces their purchasing power.