June’s 0.5% inflation in line with Fed’s goal

The cost of living in the U.S. rose in June by the most in four months as gasoline prices increased, a sign that inflation is advancing toward the Federal Reserve’s goal.

The consumer price index increased 0.5 percent after a 0.1 percent gain the previous month, the Labor Department said Tuesday. The biggest advance in gasoline prices in four months accounted for about two-thirds of the gain in the index. The core measure, which excludes food and fuel, rose 0.2 percent, matching the May gain.

Inflation readings closer to the Fed’s goal of 2 percent a year will give the central bank the flexibility to move forward later this year with reductions in its monthly asset purchases designed to stoke the economy.

“This is probably going to be a little bit comforting for some of the folks at the Fed who are worried about lower inflation,” said Omair Sharif, an economist at RBS Securities Inc. in Stamford, Conn., who correctly forecast the index. “Inflation’s still very subdued, still very well contained.”

The results included the biggest increase in clothing costs since August 2011 and higher prices for medical care, new cars and household furnishings.

Overall consumer prices increased 1.8 percent in the 12 months ending in June, more than projected and after a 1.4 percent year-over-year gain the previous month.

Core prices rose 1.6 percent from June 2012, in line with projections and after a 1.7 percent advance in the previous 12-month period.

Energy costs in June increased 3.4 percent compared with May. Gasoline prices jumped 6.3 percent, the most since February.

The national average price for a gallon of gasoline on Tuesday was $3.64, according to auto club AAA. That’s up from $3.48 a week ago. In Arkansas, the average price Tuesday was $3.43, up from $3.29 a week ago.

Food costs in June rose 0.2 percent, reflecting higher prices for cereals and meats. Automobile prices increased 0.3 percent.

Higher prices are taking a bigger bite out of Americans’ paychecks. Tuesday’s report showed hourly earnings adjusted for inflation were unchanged in June from a month earlier, after a 0.1 percent decrease the previous month. They were up 0.4 percent over the past 12 months.

Retailers may hold prices in check until demand accelerates. Retail sales climbed 0.4 percent in June, less than forecast, as American consumers kept their buying in check for goods other than automobiles, figures showed Monday.

Central bankers such as St. Louis Fed President James Bullard have expressed concern that inflation may be running too low, which may weaken the expansion.

Still, limited overall price gains in the economy so far have given Fed officials more room to continue steps to spur growth and trim the unemployment rate.

Fed Chairman Ben Bernanke, in two days of testimony to Congress starting today, may shed more light on the central bank’s view of the economy and how policymakers may begin scaling back $85 billion in monthly bond purchases.

“Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,” Bernanke said in response to a question after a July 10 speech in Cambridge, Mass. He said he expects inflation to “come back up” closer to the Fed’s 2 percent goal.

Recent moves in oil and gasoline futures point to further energy price increases next month, Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Conn., said in a note. The gains would shore up the price measures and soothe concerns of policymakers who think inflation is too low, he said.

The consumer price index is the broadest of three price gauges from the Labor Department because it includes goods and services. About 60 percent of the index covers prices that consumers pay for services from medical visits to airline fares, movie tickets and rents.

In a separate report Tuesday, the Federal Reserve said manufacturing production rose 0.3 percent in June from May. That followed a 0.2 percent gain the previous month. Still, the two consecutive gains barely offset production declines in March and April.

Overall industrial production, which includes factories, mines and utilities, also rose 0.3 percent in June. Mining output increased 0.8 percent, while utility output slid 0.1 percent.

“Manufacturing has been weak for several months, that’s the bad news,” said Ward McCarthy, chief financial economist at Jefferies LLC in New York. “The good news is it looks like some of the forward indicators suggest manufacturing is going to pick up, and that it may already be picking up.”

Manufacturing is the most critical component of industrial production. The recent gains are a hopeful sign that factories could help the economy grow in the second half of the year.

The “report confirms the picture of a moderate recovery in the manufacturing sector,” Annalisa Piazza, senior economist at Newedge Strategy, wrote in a research note.

Manufacturers have struggled this year, providing little support to the economy. Their output is up just 1.8 percent over the past 12 months. And factories have cut jobs in each of the past four months, shedding a total of 24,000 since February.

A key reason for the weakness is that slower global growth has cut demand for U.S. exports. Europe is still in a recession, and China’s economy grew from April through June at the slowest pace in more than two decades.

Information for this article was contributed by Shobhana Chandra, Lorraine Woellert, Victoria Stilwell and Chris Middleton of Bloomberg News and Paul Wiseman of The Associated Press.