US consumer prices rise just 0.1 pct in May

[June 19, 2013]  WASHINGTON (AP) -- U.S. consumer prices rose slightly last month, as higher energy costs partly offset cheaper food. The small increase is further evidence that consumers are benefiting from mild inflation.

The consumer price index ticked up a seasonally adjusted 0.1 percent in May from April, the Labor Department said Tuesday. Over the past 12 months, prices have risen just 1.4 percent.

Excluding volatile food and gas costs, core prices rose 0.2 percent in May from April. Core prices are up just 1.7 percent over the past 12 months, in line with the Federal Reserve's inflation target of 2 percent.

"Inflation has faded to only a minor irritant," Michael Montgomery, an economist at IHS Global Insight, said in a note to clients.

Slow economic growth and high unemployment have kept wages from rising quickly. That's made it harder for retailers and other firms to raise prices.

Tame inflation has helped consumers increase spending this year, despite slow income growth and higher Social Security taxes. It also makes it easier for the Fed to continue its extraordinary efforts to boost the economy.

The Fed is meeting Tuesday and Wednesday amid growing speculation that policymakers could soon scale back $85 billion a month in bond purchases. The bond buys are intended to lower long-term interest rates and encourage more borrowing, investing and spending.

If inflation were to fall too low, the Fed might be inclined to avoid pulling back on its stimulus. But economists said the small gain in prices last month isn't low enough to alarm Fed policymakers.

Tuesday's report "won't prevent the Fed from beginning to reduce its monthly asset purchases, probably beginning in September," said Paul Ashworth, an economist at Capital Economics.

In May, higher natural gas and electricity costs pushed up energy prices 0.4 percent. Gas prices were flat. Food costs fell 0.1 percent, as grocery prices dropped by the most in almost four years.

The cost for prescription and nonprescription drugs fell 0.7 percent in May, the steepest decline on record. The cost for medical services was unchanged last month.

Overall health care prices rose just 2.2 percent since May 2012. That's the smallest year-over-year increase for that category in more than 40 years, helping keep inflation mild.

Consumers have kept spending at a modest pace in recent months. Retail sales rose at a healthy clip in May from April, the Commerce Department said last week. Americans spent more on cars and trucks, home improvements and sporting goods.

Steady job gains and resilient consumer spending have fueled intense speculation that the Fed may soon start reducing the pace of its monthly bond purchases. That's caused heavy volatility in stock and bond prices.

The Fed has said it will continue to buy bonds until the job market improves substantially.

The Fed also says it plans to keep the short-term interest rate it controls at a record low near zero until the unemployment rate falls below 6.5 percent, provided inflation remains under control. The unemployment rate ticked up in May to 7.6 percent, though it is down 0.6 percentage points in the past year.

[Associated Press; By CHRISTOPHER S. RUGABER]

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