WASHINGTON -- Retail prices increased in May by the largest amount in more than two years, reflecting the biggest one-month jump in gasoline prices in nearly six years. But outside of energy, inflation remained modest.
The consumer price index rose 0.4 percent last month, the biggest advance since February 2013, the Labor Department reported Thursday. The increase was driven by a 10.4 percent rise in the cost of gasoline, which has started climbing after nearly a year of falling energy prices.
Declining costs for used cars and trucks, clothing and hotel stays combined with a deceleration in health care expenses held back the core index, swamping advances in rents. Federal Reserve policymakers, who ended a meeting Wednesday to assess when to begin raising interest rates, reiterated they see price gains gradually progressing toward their target of a 2 percent annual inflation rate.
"Inflation is way below where the Fed is hoping it'll end up," said Nariman Behravesh, chief economist for IHS Inc. in Lexington, Mass. "The pace of interest rate hikes is going to be very, very slow."
Core inflation, which excludes volatile food and energy, was up a modest 0.1 percent in May. Over the past 12 months, overall inflation has shown no increase, while core inflation is up just 1.7 percent, both showing modest inflation pressures.
Even with the 10.4 percent increase in gasoline prices, the biggest one-month jump since June 2009, prices at the pump are still 25 percent below where they were a year ago.
However, prices at the pump have been rising recently. The nationwide average is up to $2.80, 10 cents higher than a month ago but still below the price a year ago of $3.66, according to AAA.
Food prices were unchanged in May, matching April's flat reading.
Prices for a variety of products did show gains in May including increases for new vehicles, alcoholic beverages and personal care such as haircuts.
The Fed's preferred gauge of inflation, linked to consumer spending, hasn't been above the central bank's 2 percent goal since March 2012. It climbed by 0.1 percent in April from a year earlier, the smallest 12-month gain since October 2009. The Commerce Department will release May's consumer spending figure next Thursday.
The recent stabilization in energy costs is helping underpin inflation. Oil prices have rebounded from a six-year low as falling U.S. stockpiles and a slowdown in drilling counter data showing that producers elsewhere are pumping more.
Fed officials said inflation will probably remain near its recent low level in the near term. Still, they expect it to "rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate," according to the central bank's statement.
Chairman Janet Yellen, at a news conference after the meeting, said the big declines in energy prices toward the end of 2014 are not going to wash out of the inflation data until later this year, though the recent steadying is encouraging.
"The fact that energy prices have stabilized means the pressure from that source is diminishing," she 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 consumers pay for services from medical visits to airline fares, movie tickets and rents.
Wholesale prices advanced 0.5 percent in May.
Information for this article was contributed by Martin Crutsinger of The Associated Press and by Shobhana Chandra and Chris Middleton of Bloomberg News.
Business on 06/19/2015