Wholesale prices increase but sales lag

Wholesale prices are up 9 percent over the 12 months.

WASHINGTON (AP) — The economy showed the depth of its twin problems on Tuesday, slow growth and rising inflation, as the nation wrestled with a teetering financial system, a slumping dollar and rising prices for food and fuel.

The Labor Department reported that soaring costs for gasoline and food pushed inflation at the wholesale level up by a bigger-than-expected 1.8 percent in June, leaving inflation rising over the past year at the fastest pace in more than a quarter-century.

Over the past 12 months, wholesale prices are up 9.2 percent, the largest year-over-year surge since June 1981, another period when soaring energy costs were giving the country inflation pains.

Core inflation, which excludes energy and food, was better behaved in June, rising by just 0.2 percent, slightly lower than expectations.

A separate report from the Commerce Department showed all the economy’s problems were weighing on the consumer. Retail sales edged up by a tiny 0.1 percent in June, weaker than expected, as consumer spending was held back by a sharp plunge in sales at auto dealerships.

The weak retail sales performance was a bad sign for future growth, given that it came in a month when the government was pumping out another $28 billion in economic stimulus payments, bringing the total payments to $78 billion at the end of June. Analysts said even this massive infusion of government support was not enough to overcome all the problems weighing on consumers.

Wall Street rebounded from steep early losses and trade mixed as a plunge in oil prices gave investors optimism that lower energy prices could help revive the flagging economy. Oil prices plunged — at times dropping more than $10 a barrel from the day’s high — on concerns that the economic malaise in the U.S. would stifle demand for crude. It was the third big sell-off in just over a week.

Federal Reserve Chairman Ben Bernanke said Tuesday that the fragile economy was being confronted by “numerous difficulties” including persistent strains in financial markets, rising joblessness and housing problems. He said rising prices for energy and food were elevating the risks of inflation.

Delivering his midyear economic report to the Congress, Bernanke said the current situation poses “significant challenges” for Fed policymakers as they try to chart the best course for keeping the economy growing, while making sure inflation doesn’t dangerously flare up.