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Economic Strife No Match For Wal-Mart


Bentonville Behemoth beats the Street.

Rising inflation may force the Federal Reserve to boost interest rates, a step the Federal Open Market Committee declined to take at its last meeting.

The US Department of Labor says the Consumer Price Index rose 0.8% in July after increasing 1.1% in June.

The seasonally-adjusted 0.8% increase was twice what economists had forecast.

The report is almost certain to sharpen the debate between policymakers who believe inflation will slow and those who believe inflation is worsening. Higher prices in food, fuel and clothing suggest it will be difficult for the Federal Reserve to leave interest rates unchanged much longer.

Energy accounted for about half the increase. The index for all items less food and energy increased 0.3% for the second month in a row.

Prices were up 5.6% from a year ago, the largest year-over-year increase since the 5.7% posted in January 1991. Economists had expected prices to rise 5.1%.

Energy prices increased 4% in July following a 6.6% increase in June. Year-over-year, energy prices are up 29.3%.

But the price of oil is down from its peak in July and this may moderate next month's inflation report. A barrel of oil recently fetched $115.28 on the New York Mercantile Exchange, down about 22% from the high of $147.27 on July 11th.

The Labor Department says average weekly earnings, adjusted for inflation, declined by 3.1% in July compared with a year ago. This has left many consumers feeling squeezed.

The number of workers filing new claims for unemployment benefits fell to a seasonally- adjusted 450,000 for the week ended August 9th from the 460,000 the week before, but that was above the 432,000 claims economists had predicted. The 4-week moving average of new jobless claims, generally a better gauge of the labor market because it irons out week-to-week spikes, climbed to 440,500 last week from 421,000 the week before. That was the highest figure in about 6 years.

The downbeat economic news hasn't hurt Wal-Mart (WMT), the world's largest retailer.

Wal-Mart spiffed up its consumer electronics, apparel and home furnishings in an effort to attract customers who may be moving down from Macy's (M), Dillard's (DDS) or J.C. Penney (JCP) in an effort to save money. Wal-Mart also cut prices on basic home supply items.

The tactics have worked - with an assist from tax rebate checks.

Wal-Mart said net income for the second quarter rose to $3.45 billion, or $0.87 a share, from $2.95 billion, or $0.72 a share, for the same period a year ago. Analysts expected the company to earn $0.84 a share.

The company said profit grew 17% because it cut prices and consumers went shopping with their tax rebate checks. The tax rebates were part of the government's effort to goose the sluggish economy.

Wal-Mart says same-store sales, or sales at stores open at least a year, rose 3.9% in May and 5.8% in June.

Without rebate checks to boost consumer spending, Wal-Mart expects to earn $0.73 to $0.76 a share in the third quarter. For the fiscal year that ends early in 2009, the company says it expects to earn $3.43 to $3.50 a share, beating analysts' estimates of $3.47 a share.

For more on Wal-Mart, check out Hoofy & Boo's always astute report:

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