MercoPress. South Atlantic News Agency

US inflation in June at its fastest pace in 17 years

United States inflation accelerated at its fastest pace in 17 years in June driven higher by surging energy prices. Consumer prices were 5% higher than a year ago and rose 1.1% on a monthly basis, the Labor Department said on Wednesday.

Federal Reserve boss Ben Bernanke has warned that the threat of rising inflation has intensified recently. Minutes from the Fed's latest meeting on interest rates indicated the next move in borrowing costs could be up. It faces the dilemma of having to stem the rise in inflation while not further choking an economy under serious strain. June's annual inflation increase was the highest since 1991 while the monthly jump is the sharpest since September 2005. In his second day of congressional testimony on Wednesday, the Fed boss said inflation was too high and it was a key objective for the central bank to bring it down. Many analysts now believe that the central bank may have to leave borrowing costs on hold, or even increase them, as it tries to steer a faltering economy through turbulent times. At the same time as inflationary pressures are rising, the US faces a severe housing slump, a credit crunch and financial market turmoil stemming from the collapse of the sub-prime mortgage market. According to minutes of the Fed's interest rate meeting in June, policymakers believed "the next change in the stance of policy could well be an increase" due to "upside risks to inflation and inflation expectations". Energy prices were the main driver of price growth, and were 6.6% higher in June as the cost of petrol, natural gas and heating oil increased. But expectations that that a slowing US economy will dampen demand for oil helped crude prices fall more than 4 US dollars to below 135 US dollars a barrel, their second sharp daily fall. Annual core inflation, which strips out volatile fuel and food prices, touched 2.4%. The surge in living costs has dented the earning power of US residents. Average weekly wages, after adjusting for inflation, fell by 0.9% in June - the biggest monthly decline in 24 years, added the Labor Department.