RENEE MONTAGNE, host:
NPR's business news starts with the latest on inflation.
It's not so good. The government is reporting this morning that prices companies pay for goods and services jumped unexpectedly again in July. Wholesale prices had a similar large rise in June. And this is grim in some ways because it means the Federal Reserve has less flexibility to keep interest rates low and encourage the economy to grow.
The news came on the same day that the government reported a continuing slump in the housing market. The Commerce Department says home builders sharply cut back on construction projects last month.
NPR's Chris Arnold reports.
CHRIS ARNOLD: The Labor Department's producer price index saw its biggest jump in 27 years, with prices up 1.2 percent in July. The so-called core rate, excluding food and energy, was .7. That's much higher than most economists expected. Ken Beauchemin is an economist with Global Insight.
Mr. KENNETH BEAUCHEMIN (Economist, Global Insight): The troubling aspect of that is that I think we're seeing unmistakable signs that the higher commodity prices from the past, at least, are pushing their way through to final goods prices.
ARNOLD: In other words, high oil prices and rising costs for commodities like steel and copper and lots of other raw materials are finally starting to result in higher prices for things like machinery, bicycles and coffeemakers, all the stuff that companies and consumers buy. That puts the Federal Reserve in a bit of a bind. It had been cutting interest rates to try to stimulate the struggling economy, but it can't keep doing that if it's worried about inflation, since those rate cuts can make inflation worse.
But Beauchemin says the sky is not falling here.
Mr. BEAUCHEMIN: No, the sky's not falling. The good news is that we have a very - a very skillful Federal Reserve. They have a very solid understanding of what pushes fundamental inflation; that is, inflation that we might have experienced in the 1970s was largely the result of policy mistakes.
ARNOLD: Beauchemin says we have a better understanding now of how to deal with inflation than we did in the 1970s. Also the weakening labor market and falling energy prices are likely to stop inflation from getting too out of control.
Also out this morning - new data shows the number of new homes that builders broke ground on in July was down 11 percent from June and down 30 percent from a year ago. The ongoing wave of foreclosures in continuing to glut the market and push down prices.
Chris Arnold, NPR News.
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