US consumer prices increased 0.7 percent in May as gasoline costs spiked dramatically, but the “core” inflation rate was much tamer, the government said Friday.
The Labor Department's consumer price index (CPI) was slightly stronger than the 0.6 percent rise widely expected by most Wall Street analysts. The jump in consumer prices was the strongest since September 2005.
The government report revealed, however, that the core rate of inflation excluding food and energy costs, was slightly lower than forecasts as it posted a mild 0.1 percent gain. The core rate's gain was the weakest since March.
Most economists view the core rate as a better indicator of inflation trends, and the core rate's May reading is likely to give some comfort to the Federal Reserve which has cited inflationary pressures as one of its key concerns.
The Fed has opted not to reduce US interest rates in the last year, despite a housing slump, as it has focused on warding off potential inflationary threats.
“If you love to buy clothes, the world is great but if you drive or eat, hold on to your wallets,” said Joel Naroff of Naroff Economic Advisors.
Sharp energy price spikes were largely responsible for the gain in headline consumer prices.
Overall energy costs rose 5.4 percent last month, more than double the 2.4 percent gain posted in April, as gasoline costs leapt 10.5 percent.
Retail gasoline prices have climbed to record heights in recent weeks, rising above 3.00 dollars a gallon in some cities, partly as refiners have struggled to meet demand.
Some analysts believe gasoline demand could become even more stretched this month as stocks remain suppressed, but demand is anticipated to rise as millions of Americans take to the roads en route to vacation hotspots.
Heating oil costs rose 1.9 percent while natural gas prices increased 0.9 percent, the report showed.
Food prices, which are also volatile, moderated to a 0.3 percent rise compared with a 0.4 percent gain in the prior month.
Transportation costs rose 2.8 percent in May while housing costs increased 0.2 percent. Clothing costs dropped 0.3 percent for a second straight month.
Consumer prices had increased 0.4 percent in April while the core rate had risen 0.2 percent.
Over the past 12 months consumer prices are up 2.7 percent and core prices up 2.2 percent.
