US Inflation

Can Credit Repair Help?

Inflation is rising, but the Federal Reserve is trying to hold off raising interest rates to keep prices in check until at least next year.

On Thursday, the government reported that consumer prices increased at double the rate expected, recording the fastest rate of year-over-year growth in more than 17 years. Food and energy costs drove the uptick, resulting in an annual inflation rate of 5.6%, compared with 5.0% in June.

The Labor Department said the Consumer Price Index, considered a key gauge of inflation, rose 0.8% monthly in July, after a 1.1% jump in June. That was far above the 0.4% gain that economists polled by Reuters had forecast for July.

The weak economic data had investors clamoring for a safe bet. The yield on the 10-year U.S. Treasury bond declined to 3.89%, from 3.95% at Wednesday’s closing, and the 30-year note fell to 4.52% from a close of 4.58% on Wednesday. The news that the Fed may have to raise rates, along with an almost $3 drop in oil prices to $113.12 on the New York Mercantile Exchange, caused the dollar to gain some traction. The 15-nation euro slid to $1.4804 Thursday in New York from $1.4934 late Wednesday. Thanks to an ebb in crude appreciation, energy prices rose 4.0% in July, after a 6.6% June gain, and were up 29.3% on a year-over-year basis. Food costs rose 0.9%, following a 0.8% June increase, putting food costs 6.0% higher than a year ago. Excluding volatile food and energy items, core CPI rose 0.3% in both June and July, slightly above forecasts for a 0.2% gain in July. On a year-over-year basis, core prices rose 2.5% in July, slightly more than the 2.4% rise that was forecast. Some people believe that the weakened global growth and the drop in oil prices will help keep inflation down in coming months, allowing the Fed to hold off on raising interest rates. “The market believes weak growth and weakened demand will arrest inflation,” said Josh Stiles, senior bond strategist at IDEAglobal in New York. “That’s why Treasuries survived that 0.3% increase in core CPI.” The government also reported that initial claims for jobless benefits fell by 10,000, to 450,000, well above the 432,000 that economists had been looking for. Many regard 400,000 as the watermark for an economic slowdown. The additions brought the number of Americans on the dole to 3.4 million, which was the highest number since November 2003.

As consumers fight inflation and job woes mount, the U.S. housing market is still painfully unwinding from the subprime mortgage mess. The combination of falling home prices and a tight lending environment has left many homeowners in houses worth less than they bought them for–and sometimes, especially when teaser periods on adjustable-rate mortgages expire, in ones they can no longer afford.

According to data released Thursday, the number of foreclosures in July jumped by 8.0% from the month before and surged by 55.0% from a year ago. Data provider RealtyTrac reported that 272,000 homes, or one in every 464 U.S. households, received at least one foreclosure-related notice in July.

Irvine, Calif.-based RealtyTrac monitors default notices, auction sale notices and bank repossessions. More than 77,000 properties were repossessed by lenders nationwide in July, the company said.

Reuters contributed to this article.