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Inflation Rising, Home Construction Falling

Highest price growth since 1981

By Mark Huffman
ConsumerAffairs.com

August 19, 2008

The U.S. Labor Department reports the Wholesale Price Index shot up 1.2 percent in July, on the heels of a 1.8 percent rise in June. It's the sharpest year over year inflation growth since 1981.

The U.S. Commerce Department reports housing starts plunged 11 percent in July from the month before. Compared to July 2007, groundbreakings were off 29.6 percent. The one bright spot is found in the Midwest, where housing starts were up 10 percent.

A report this week from the National Association of Home Builders gauged members' view of their market prospects at a record low, with the August index for sales of new, single-family homes holding at 16.

The rising inflation and lackluster housing data presents the Fed with something of a problem. Policy-makers were hoping that declining economic activity would tamp down inflationary pressures.

Instead, the U.S. economy appears to be threatened by simultaneous inflation and slow economic growth, a pattern that characterized much of the 1970s and was known as "stagflation."

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