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Inflation Climbs to 17-Year High

Indications from Wal-Mart, the largest U.S. retailer, suggest that Americans are turning more to discounted food and medicine. Wal-Mart is using its global purchasing power to contain costs while curbing other expenses.

"Wal-Mart's customer is reflective of society in general. While some of them live paycheck-to-paycheck, our customers represent a broad income segment, and they are all challenged today," chief executive H. Lee Scott Jr. said in a conference call with analysts yesterday. "When energy and oil prices go up on top of inflation in health-care and core food items, there's a great deal of pressure on the customer."

Last week, Wal-Mart said it was beginning to see sharper spikes in sales after pay cycles, which suggests more people need every penny they earn to afford basic goods.

"This is my new home," said Tawanda Felder of District Heights, standing outside the Wal-Mart in Landover Hills. Felder, who was laid off seven months ago and hasn't found a job since, said she is able to fill prescriptions at $10 per month that would cost $35 elsewhere. "The prices are significantly different."

Wal-Mart reported yesterday that second-quarter profit rose 17 percent, to $3.45 billion. The world's largest retailer rang up $101.6 billion in sales, a 10.4 percent increase from last year. The company raised its annual earnings forecast.

Other government reports made clear yesterday that rising prices and a slowing economy are making life difficult for many.

Americans' buying power eroded in July, the government said yesterday. Average weekly earnings slipped 3.1 percent in July compared with the year-ago figure, in the biggest decline since November 1990.

The government also said the number of people receiving unemployment benefits for more than a week jumped by 114,000, to 3.4 million, a sign people are spending more time on unemployment rolls.

"A lot of people are beginning to adapt to higher prices [for] food and energy, as much as they don't like it," said Terry Sheehan, an economic analyst with Stone & McCarthy Research Associates. "Their long-term worry is: Are they going to keep their job?"

In recent weeks, oil prices have come down about 20 percent from their highs, which should show up in upcoming inflation reports. "I don't want to say that was inflation's final hurrah, but the inflation storm may just have passed," said Stuart G. Hoffman, chief economist with PNC Financial Services Group.

In other economic news, median home prices declined in more than 75 percent of U.S. cities during the second quarter. But home sales rose in places where the market was already filled with foreclosures.

Staff writers Neil Irwin and Alejandro Lazo contributed to this report.

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