June inflation jumps as incomes barely rise

By Glenn Somerville

WASHINGTON (Reuters) - 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 on Monday.

The Commerce Department said personal incomes edged up 0.1 percent after rising 1.8 percent 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 percent in June, up from 3.5 percent in May, for the biggest annual gain since May 1991.

An inflation gauge tied to consumer spending jumped 0.8 percent in June, its steepest gain since a 1 percent rise more than 27 years ago, in February 1981.

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

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

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

Stock prices fell modestly despite a drop in oil prices to $121.41 on the New York Mercantile Exchange. The Dow Jones industrial average, which had turned positive briefly in the afternoon, ended down 42.17 points at 11,284.15, while the Nasdaq composite index slipped 1.10 to 2,285.56.