U.S. Consumer Prices Rose More Than Forecast in July (Shobana Chandra)

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Inflated Dollar

Aug. 14 (Bloomberg) -- U.S. consumer prices jumped to a 17- year high in July, reducing the ability of the Federal Reserve to lower interest rates should the economic slowdown deepen.

The consumer price index climbed 0.8 percent, twice as much as anticipated, the Labor Department said today in Washington. The cost of living was up 5.6 percent in the year ended in July, the biggest surge since January 1991. So-called core prices, which exclude food and energy, also rose more than projected.

{xtypo_quote_left} Food prices, which account for about a fifth of the CPI, gained 0.9 percent after a 0.8 percent increase in June. {/xtypo_quote_left}

The report may intensify the debate between those Fed policy makers that forecast inflation will slow and those concerned that price pressures will accelerate. Increases beyond food and fuel, including gains in clothing, airline fares and education, make it less likely that central bankers will be able to keep interest rates unchanged for long.

There is ``a tremendous amount of cost pressure here that is affecting many, many industries,'' William Poole, the former St. Louis Fed president, said in an interview with Bloomberg Television. Today's report ``raises the general trajectory'' of interest rates, reducing the chance of cuts and bringing forward the likelihood of increases, he said.