Energy Costs Push Consumer Inflation Higher

Driven by soaring gasoline prices, consumer inflation rose to its highest level in six months. The Labor Department reported that consumer prices jumped 0.6% last month, the biggest one-month increase since last November, as gasoline costs surged by 5.7%. Food prices were up 0.3% as the cost of beef and bakery products showed big gains. Core inflation, which excludes energy and food, was up a more modest 0.2% in May. However, core prices are up 2.3% over the past 12 months. Due to mounting inflation, The Federal Reserve, which from September through April had been cutting interest rates to fight an economic slowdown, is now indicating that the threat of out-of-control inflation is its biggest concern and not the threat of a recession. Its next move may be to raise interest rates, not lower them.

Meanwhile, with energy and food costs rising, producer prices jumped to their highest levels in six months. The Labor Department reported that its Producer Price Index climbed 1.4% in May, up considerably from a modest 0.2% rise in April. However, excluding volatile energy and food prices, core inflation rose 0.2% in May, which was an improvement from the prior month's 0.4% increase. Energy prices jumped 4.9% in May, the biggest gain since November. Diesel fuel prices surged 11.2%, gasoline prices were up 9.3%and home heating oil increased 8%. Food prices rose 0.8% in May, after being flat in April. While food and energy costs did not carry over into other areas, analysts are concerned that eventually these costs will force companies to boost prices for many other goods and services, spreading inflation through the economy.

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Date Last Updated: 06/18/2008