core inflation rising at 11 year high in june

ECONOMIC REPORT
Core inflation rising at 11-year high in June
Real consumer spending tepid for fourth straight month
By Rex Nutting, MarketWatch
Last Update: 9:20 AM ET Aug 1, 2006


WASHINGTON (MarketWatch) - U.S. core consumer inflation matched an 11-year high in June, keeping the pressure on the Federal Reserve to fight inflation, the Commerce Department reported Tuesday.
The core personal consumption expenditure price index (excluding food and energy) increased 0.2% for the third straight month in June, and has risen 2.4% in the past 12 months, matching the largest year-over-year gain since April 1995.
Consumer prices including food and energy also rose 0.2% in June, and are up 3.5% in the past year.
Meanwhile, personal incomes rose 0.6% in June, outpacing the 0.4% increase in consumer spending. Read the full government report.
The personal savings rate rose to negative 1.5% from negative 1.6%, the 15th consecutive month of negative savings. Consumers can have negative savings by spending previous savings, or by borrowing or selling assets to support their consumption.
After adjusting for inflation, real consumer spending rose 0.2% in June, the fourth straight month of tepid spending. After taking out taxes and inflation, real take-home pay rose 0.4%, the biggest increase in disposable income since December.
Real per capita disposable incomes rose 0.3%.
The gains in nominal monthly incomes, spending and inflation were exactly as expected by Wall Street economists surveyed by MarketWatch. See Economic Calendar.
The inflation figures continue to trouble Fed policymakers, who have said core prices are rising faster than they'd like. The Fed has raised interest rates 17 times in the past two years. Much of the impact of those rate hikes has yet to be felt, Fed officials have said.
The evident slowdown in economic growth, largely due to a weaker housing market and high energy prices, should also remove inflationary pressures over time, officials have said.
Markets are expecting the Fed to stand pat in August to reassess. Two Fed officials said Monday that the decision about whether to raise rates again would be a close call, and would depend in part on incoming data on growth and inflation. See full story.
The July jobs report is likely to have the greatest influence on Fed thinking. See full story.
The June data on incomes, spending and inflation provided monthly details to the quarterly figures released last Friday in the report on gross domestic product. That report showed core consumer inflation had risen 2.3% from the second quarter of 2005 to the second quarter of 2006. See full story.
Incomes got a boost in June from higher hourly wages. Nominal compensation of employees increased 0.6% in June, with wages also up 0.6%.
Income from assets rose 1.5% in June, the third straight gain over 1%. Proprietors' income increased 0.1%.
Nominal disposable per capita income rose 0.5% to $31,705.
Real spending on durable goods rose 0.5%, the first gain in three months. Real spending on nondurable goods increased 0.3% and real spending on services increased 0.1%, the weakest gain since January.
Rex Nutting is Washington bureau chief of MarketWatch.