U.S. wholesale prices rise faster than expected in July

U.S. wholesale prices rose more than twice as fast as expected last month and topped the one per cent level for the third month in a row, according to statistics released Tuesday.

In July, American wholesale prices rose 1.2 per cent from the prior month as measured by the U.S. Department of Labor's producer price index, or PPI.

The PPI measure, which calculates price hikes for goods and services that companies buy from other firms, is often considered to be a measure of future retail inflation. Wholesale prices in July were more than 16 per cent higher than the same month last year.

The higher wholesale number comes fast on the heels of another report last week that the U.S. economy's overall inflation rate hit its highest level in 17 years, 5.6 per cent in July.

Inflation predictions

The PPI could indicate that the national inflation rate south of the border is headed even higher — which would be bad news for central bankers in Canada and the United States.

In recent statements, Bank of Canada Governor Mark Carney and the chairman of the U.S. Federal Reserve Board, Ben Bernanke, predicted that inflation, which had been driven higher by rising fuel and food costs, would moderate over the remainder of 2008.

Bank of Canada Governor Mark Carney has forecast that inflation will moderate, but the latest U.S. data suggests that price pressures haven't eased south of the border. (Dean Cox/Associated Press)

The Bank of England, by contrast, seems to better braced for inflation, having taken a tough tack regarding future price hikes in that country.

Tim Beasley, a professor at the London School of Economics and a member of the Bank of England's powerful interest-rate setting committee, said Tuesday that the British central bank needs to make sure that inflation in the United Kingdom is not allowed to pick up more steam.

"It would be easy to give in and let inflation get out of control — that’s what happened in the 1970s. But it would be damaging and dangerous for the economy," Beasley wrote in an editorial in London's Sun tabloid newspaper.

Beasley is an ardent opponent of rising prices, arguing that the cycle of rising inflation can destroy economies.

"This spiral has to be nipped in the bud, and that means having interest rates at a suitable level until the threat of higher inflation has passed," he wrote.

Last month, the central banks of England, Canada and the United States kept interest rates steady, neither raising them to slow inflation nor cutting them to boost the economy.

But weaker U.S. housing start figures, also released on Tuesday, could in fact place pressure the Fed to do something to stimulate home purchases.

Last month, U.S. house and apartment construction fell to its lowest level in 17 years, at an annualized rate of less than one million new units.

Consumers have been pulling away from buying new homes as the U.S. economy continues to show signs of weakness.

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