CONSUMER PRICES CONSUMER PRICES WASHINGTON  U.S. consumer inflation surged in July driven largely by soaring energy and food prices. The Labor Department said Thursday its consumer price index jumped by a seasonally adjusted 0.8% during the month, following a 1.1% rise in June. Inflation is up 5.6% in the past 12 months, the largest year-over-year increase since 1991. Economists noted that oil prices have fallen significantly from a high closing price of $145.29 a barrel on July 3, which should help general inflation moderate. Oil on Thursday slid 99 cents to close at $115.01 per barrel. Yields on Treasury bonds and notes fell, an indication that bond traders believe inflation will moderate. Retailers might also have to discount to move merchandise as the impact of recent federal tax rebate checks wears off and consumer spending slows. "Retail prices appear poised to drop more frequently than swimming records at the Beijing Olympics," says Michael Gregory of BMO Capital Markets. Private and government reports on Thursday showed falling wages, climbing applications for unemployment benefits and rising home foreclosures. Inflation-adjusted average weekly earnings were down 3.1% in the past 12 months, the Labor Department said. That leaves the Federal Reserve in a bind as it tries to navigate between rising inflation and slumping growth. The central bank has held a key interest rate steady since cutting it to a relatively low 2% in April. Some officials, including Dallas Fed President Richard Fisher, want the central bank to raise rates to keep price pressures under control. In a Thursday speech in Montana, Minneapolis Fed President Gary Stern predicted modest growth and rising unemployment but also said he expected inflation to diminish, "absent a resurgence in energy and other commodity prices." Sung Won Sohn, economist at California State University, expects the Fed to stand pat for months. The banking sector is struggling, constricting credit for businesses. A strengthening dollar could hurt U.S. exports. Sohn expects U.S. growth to remain subpar through 2009 and beyond. Guidelines: You share in the USA TODAY community, so please keep your comments smart and civil. Don't attack other readers personally, and keep your language decent. Use the "Report Abuse" button to make a difference. You share in the USA TODAY community, so please keep your comments smart and civil. Don't attack other readers personally, and keep your language decent. Use the "Report Abuse" button to make a difference. Read more