Conservatives will have to stick their heads further in the sand to avoid the bad news this brings:
American businesses faced the biggest annual jump in wholesale prices in 27 years last month, just as the stumbling economy caused consumer spending to drop.
While the challenges are expected to make it more difficult for businesses to raise prices and maintain profit margins, they also underscore the pressure on Federal Reserve policy makers as they consider whether to raise rates.
"Hot inflation and cool housing leaves the F.O.M.C. stuck in neutral for now," said Stuart Hoffman, chief economist at PNC Bank, in a note, referring to the Federal Open Market Committee, the central bank's policy-making body.
The 1.2 percent rise in wholesale prices, reported on Tuesday by the Labor Department, was well above economists' expectations and the latest report showing a sharp rise in inflation in July. Some of the higher prices have tapered off because of the recent decline in crude oil prices.
But American businesses and consumers, along with central bankers, are facing an increasingly difficult situation. Businesses can raise retail prices and risk losing customers who are already squeezed by the downturn. Or they can eat the cost of more expensive goods and lose profits.
Fed officials, meanwhile, could raise interest rates to choke off inflation. But higher rates would likely exacerbate the risks to economic growth, like the tight credit market and the housing slump. Last month, housing construction fell to its lowest pace in more than 17 years, according to a separate government report released on Tuesday.
Outside of food and fuel, businesses paid 0.7 percent more for so-called "core" goods, especially automobile parts, industrial equipment and prescription drugs.
The annual increase in overall prices, including energy, was 9.8 percent, the biggest 12-month jump since the deep recession of the early 1980s.
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