U.S. inflation soared to a 17-year-high annual rate in July, a government report showed, led by gains in food, energy, airline fares and apparel.

Separately, the number of U.S. workers filing new claims for unemployment benefits fell slightly as expected last week but remained at high levels consistent with a rapid erosion in labor markets.

The consumer price index rose 0.8% in July, the U.S. Labour Department said today. Excluding food and energy, the CPI advanced 0.3% for a second-straight month.

Wall Street economists had expected only a 0.4% rise in the headline and 0.2% core increase.

Consumer prices jumped 5.6% on a year-over-year basis, the highest rate since January 1991. The core CPI grew a more modest 2.5% compared to July 2007, though that’s still well above the U.S. Federal Reserves’s long-term goal of 1.5% to 2%. Over the past three months, core inflation rose at a 3.5% annual rate.

On a positive note, many of the forces boosting U.S. prices in recent months — particularly high energy and commodity prices and the weaker U.S. dollar — have reversed since mid-July.

Energy prices swelled 4% last month, according to the CPI report. Gasoline prices spiked 4.1%, and natural gas prices rose 7.4%. Food and beverage prices rose 0.9%. Medical care prices, meanwhile, increased a modest 0.1%.

But other core items posted sharp gains, a sign that higher headline inflation may have started seeping through the rest of the economy.

Clothing prices rose 1.2% compared to June, a 10-year high. Transportation prices soared 1.7% on the month as airline fares swelled 1.3%, reflecting the rise in fuel prices. New vehicle prices advanced a modest 0.2%, reflecting falling demand.

Separately, initial claims for unemployment benefits fell 10,000 to 450,000 after seasonal adjustments in the week ended Aug. 9, the U.S. Labour Department said today. The previous week’s level was revised up slightly.

Economists had expected a 7,000 decline.

The four-week average — which attempts to smooth out weekly volatility — rose by 19,500 to 440,500, the highest level since April 2002 and well above the 400,000 mark that’s usually associated with recessions.