WASHINGTON DC: With interest rates near rock-bottom and nowhere much else to go in terms of reinvigorating the flagging economy, the US Federal Reserve must now make difficult decisions on how to tackle rising inflation.

Latest figures from the Labor Department show the Consumer Price Index rose 0.8% in July and 5.6% year on year, the highest twelve-month rise since 1991.

The department also issued figures that showed average hourly earnings, adjusted for inflation, fell 2.5% year-on-year in July, the biggest drop since 1980.

Some analysts are hopeful that pressure on consumers will ease with falling gasoline prices; but others are less optimistic, citing price increases across a broad spectrum of goods and services, from airfares to clothing.

Campaigners for Democrat presidential candidate Barack Obama have seized on the inflation figures as proof positive that their Republican rivals have mismanaged the economy under the Bush administration.

Said Obama economic policy director Jason Furman: "Families have now lost an entire decade's worth of raises to inflation."

And the pain doesn't end there. Continuing unemployment claims have hit 3.4 million - the highest level since late 2003.

Bank of America economist Gary Bigg said the numbers indicate "jobs remain hard to find and that labor demand is soft".  

But White House spokeswoman Dana Perino attempted to rally the nation's hard-hit households: "It will take some time for the economy to turn around but we are confident in the long-term fundamentals and underlying strength of our economy to get us through this period."

Data sourced from reuters.com; additional content by WARC staff