A leap in gasoline prices pushed the overall rate of inflation higher last month, government data showed today, but consumer prices nationwide generally appear to be increasing at a consistently slower rate.
The Consumer Price Index, the government’s survey of retail prices on a wide range of consumer goods, registered an increase of 0.7 percent in May, compared with a rise of 0.4 percent in April. From May 2006 to May 2007, prices rose 2.7 percent, up from the 2.6 percent annual gain in April, according to the Labor Department.
But a separate calculation of consumer prices that excludes food and energy prices and is considered by economists and the Federal Reserve to be a better measure of inflation fell for the third consecutive month on an annual basis. The core consumer price index from May 2006 to May 2007 was 2.2 percent — its lowest annual reading in nearly a year and a half.
For the month, the core consumer price index increased just 0.1 percent, compared with 0.2 percent in April.
Investors were cheered by the report, sending stocks up 1 percent in early trading.
Declining inflation is what Fed officials have sought as they raised interest rates for two years before stopping last summer. Since then, they have left the benchmark short-term interest rate on hold at 5.25 percent, saying that inflation was still too high for them to consider lowering rates.
Ian Shepherdson, chief United States economist with High Frequency Economics, said in a research report today that falling core inflation raises “the question of just how long the Fed can credibly continue to argue that there is upside inflation risk.”
Wall Street would cheer an interest rate cut. Indeed, much of the turmoil in the stock market last week and early this week was over worries that the Fed might raise rates. But a low reading on the core producer price index yesterday, which surveys prices at the wholesale level, and a report from the Fed that showed few signs of inflation in the central bank’s 12 regional districts went a long way toward calming those fears.
While core inflation is falling, that is likely of little comfort for Americans who are paying near-record prices to fill up their vehicles with gasoline. Gas prices jumped 10.5 percent last month, compared with an increase of 4.7 percent in April.
Higher gas prices were the primary reason wages for the average American worker fell last month after inflation is taken into account — meaning that most Americans have seen an effective pay cut. In a separate report, the Labor Department said today that real average weekly earnings for workers in nonmanagement jobs declined 0.2 percent last month.
Pressuring consumers further, food prices continued to rise, though not as sharply as a few months ago. This year so far, beef prices are up 5.1 percent, poultry prices 4.3 percent and pork prices 3.4 percent.
“If you drive or eat, hold on to your wallets,” said Joel L. Naroff, president of Naroff Economic Advisors. “Over the year, gasoline prices have jumped 6 percent while food is up about 4 percent. This is a real problem for many households.”