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An index tracking prices that companies pay for goods jumped up sharply in July, which means inflation is a growing threat. Meanwhile, the housing market continues to slump, with home-builders sharply cutting back on construction projects.

An index tracking prices that companies pay for goods jumped up sharply in July, which means inflation is a growing threat. Meanwhile, the housing market continues to slump, with home-builders sharply cutting back on construction projects.

The Labor Department's producer price index saw its biggest jump in 27 years, with prices jumping 1.2 percent in July. The so-called "core rate" excluding food and energy was 0.7. That's much higher than most economists expected. And it means that high oil prices and rising costs for commodities like steel, copper and other raw materials are finally resulting in higher prices for things like machinery, bicycles and coffee-makers — the stuff that companies and consumers buy.

That puts the Federal Reserve in a bit of a bind. It had been cutting interest rates to try to stimulate the struggling economy. But it can't keep doing that if it's worried about inflation, since those rate cuts can make inflation snowball.

Also out this morning, new data show the number of new homes that builders broke ground on in July was down 11 percent from June and down 30 percent from a year ago. The ongoing wave of foreclosures is continuing to glut the market and push down prices. Copyright 2008 National Public Radio. To see more, visit http://www.npr.org/.