NEW YORK ( TheStreet) -- An increase in jobless claims and higher-than-expected inflation numbers indicate that the U.S. economy has a long road to recovery ahead.

American consumers paid more for goods and services in July, according to the Bureau of Labor. The government's consumer price index increased 0.5% in July while the core reading, which excludes food and energy costs, increased by 0.2%. While the core index met the consensus estimate and reversed June's decline of 0.2%, the overall index came in hotter than economists had anticipated. Consensus estimate was looking for a 0.2% increase.

An increase in food prices offset a steep drop-off in energy costs in June, which saw prices increase across sectors. In July, however, a sharp rebound in the gasoline index caused a reversal, with about half of the total price increase coming from higher energy costs.

Core inflation in the past year has risen 1.8%, close to economists' expectations. The latest reading on core inflation pushes the annual rate to a 19-month high of 1.8%, from 1.6%, according to research firm Capital Economics. Some of this was due to the largest gain in rent prices since November 2008, as well as sharp increases in clothing costs.

"Higher rents and clothing prices are likely to continue to push up core inflation, perhaps to around 2.5% by December," said Capital Economics.

Rising inflation for consumers has been a worry for economists because higher prices wear down consumer confidence, which can hurt growth in the economy. Inflation also prevents the Federal Reserve from addressing the economic slowdown with more quantitative easing. Capital Economics predicts, however, that a fall in inflation in 2012 might let the central bank step in to help the economy down the road.

Meanwhile, the government also reported this morning an increase in initial filings for jobless benefits to 408,000 in the week ending Aug. 13. Economists were expecting initial claims to come in at 400,000 after the prior week saw a revised 399,000 number of Americans filing for the first time.

Continuing claims for the week ending Aug. 6 came in a 3.7 million. Consensus estimate was looking for continuing claims to remain about flat at the prior week's total of 3.69 million.

The four-week moving average for claims edged lower to 402,500 from the previous week's revised average of 406,000.

"Strong industrial production activity and capacity utilization, and a rise in producer prices indicate to me that the economy maybe a little stronger than expected," said Fred Dickson, chief market strategist at D.A. Davidson, before the release of today's reports. Better numbers in manufacturing could translate into stronger jobs numbers, he added.

A downward trend in initial jobless claims is sometimes seen during the summer because of seasonal changes due to auto retooling shutdowns. However, initial claims on a week to week basis can be fairly volatile. Recent weekly numbers for jobless benefits has not trended in a straight line.

So far, the government's monthly jobs report has shown a pitiful rate of jobs creation. The country has been creating around 100,000 jobs per month, barely enough to cover the amount of new people joining the labor force. The U.S. unemployment rate sits at 9.1%.

-- Written by Chao Deng in New York.

>To contact the writer of this article, click here: Chao Deng.

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