US consumer prices post sharpest rate increase in 27 years

US consumer prices jumped at the sharpest rate in more than a quarter century during June, and consumers coping with soaring costs received their smallest income gain in a year, the government said.

The Commerce Department said personal incomes edged up 0.1 per cent after rising 1.8 per cent in May. June's rise was the smallest since April 2007, when income was flat.

On a year-over-year basis, prices rose 4.1 per cent in June, up from 3.5 per cent in May, for the biggest annual gain since May 1991.

An inflation gauge tied to consumer spending jumped 0.8 per cent in June, its steepest gain since a one per cent rise more than 27 years ago, in February 1981.

"Household consumption surged in the month of June but much of that went to purchase of higher-priced food and energy," said Joel Naroff, chief economist for Naroff Economic Advisors in Holland, Pennsylvania.

Separately, the Commerce Department said June factory orders rose a bigger-than-forecast 1.7 per cent after an upwardly revised 0.9 per cent gain in May.

It was the strongest monthly gain in orders since last December and beat Wall Street economists' forecasts of a 0.7 per cent rise. But investors took their cue from the inflation data and concluded consumers were under growing pressure.

The minimal rise in June incomes came as the US government stimulus payments eased to $27.9 billion (Dh102.3bn) from $48.1bn in May this year.

The department said that except for the stimulus payments, disposable incomes would have shrunk in June.

Incomes are under stress as job markets wither. A report on Monday from employment consulting firm Challenger, Gray & Christmas underlined the fact that employment prospects are likely to get worse.

It said planned layoffs at US companies jumped 26 per cent in July from June.

Planned layoffs totalled 103,312 in July, compared with June's 81,755, the employment survey found.

Another report from the Conference Board, a private business group in New York, showed its Employment Trends Index edged down to 112.1 in July from a revised 113.1 in June. That was consistent with last Friday's Labor Department report showing employers cut payrolls for a seventh consecutive month in July.

The Commerce Department said consumer spending rose 0.6 per cent in June after gaining 0.8 per cent in May. But after accounting for inflation, consumer spending, which fuels two-thirds of national economic output, fell 0.2 per cent.

The core PCE index, which excludes food and energy items, was up 2.3 per cent in June, the highest since a matching rate last December, after rising 2.2 per cent in May.