Consumer prices increased 0.2% in May, adding to inflation concerns
The jump in the broad Consumer Price Index was less than in April and the smallest in six months, as lower gas prices helped keep overall costs down.
But the report still stoked inflation fears because prices increased more than expected and showed that rising costs had extended deeper into the economy.
Prices for all goods aside from food and energy -- so-called core inflation figures -- were up 0.3% in May, the largest increase since July 2008, according to the Bureau of Labor Statistics. That helped push up consumer prices over the last 12 months by 3.6%.
Chris Rupkey, chief financial economist for the Bank of Tokyo-Mitsubishi in New York, called the new data "unsettling" and predicted that they would increase pressure on the Federal Reserve to start raising interest rates to check inflation.
"A couple of months ago, they said, 'Don't worry about food and energy, focus on the core. Now some of the food and energy cost is affecting the price of other goods," he said.
Energy prices declined 1% in May, the first drop in nearly a year, aided by a 2% drop in gas prices. Energy prices had been shooting up sharply since December.
Food prices continued their rise in May, up 0.4%, the same as in April.
But the increase in core inflation in May was spurred by higher prices for clothing, new vehicles and recreation. The core inflation had increased 0.2% in April.
Rupkey said the higher overall prices indicated stronger consumer demand and reduced the potential for a double-dip. But with unemployment still high at 9.1% after a disappointing May jobs report, Rupkey said the Fed has to balance further stimulus with inflation concerns.
"I'm sure the Fed would like to keep [interest] rates as low as possible as long as possible ... but the fact that inflation is starting to rise now probably will mean they will have to move sooner," he said. Rupkey said he anticipates that interest rates could start rising in the first three months of 2012 if the price increases continue.
Spurred by higher gas and oil costs, consumer prices had jumped 0.4% in April. But oil prices have dropped in recent weeks, and economists had projected just a 0.1% overall increase in consumer prices in May. The Energy Department reported Monday that gas prices dropped for the sixth straight week in California, and the fifth week overall across the U.S.
California's average price for a gallon of regular gasoline has fallen 26.7 cents since the peak of $4.257 on May 2.
Photo: A pickup truck pulls out of a Valencia, Calif., gas station after filling up over Memorial Day weekend. Credit: Associated Press