WASHINGTON -- U.S. consumer prices increased 0.6% in June, after three months of declines, with a big jump in gasoline prices accounting for over half of the gain.
The Labor Department reported Tuesday that the increase in its consumer price index followed declines of 0.4% in March, 0.8% in April and 0.1% in May as the hit to demand caused by the widespread shutdowns of the economy kept a lid on prices.
The June report showed that energy prices jumped 5.1% with gasoline costs surging 12.3%. However, even with that gain gasoline pump prices are 23.4% below where they were a year ago.
Core inflation, which excludes food and energy, rose a more modest 0.2% in June, the first monthly increase since February.
Over the past 12 months, consumer prices have increased 0.8% while core inflation is up 1.2%.
That is well below the Federal Reserve's 2% target for annual gains in inflation. Economists believe that given the uncertain economic outlook with virus cases climbing again in many parts of the country, inflation pressures are likely to remain low for some time to come.
"Don't be fooled by today's jump in CPI [core price index] prices as the longer downturn in the economy from the coronavirus second wave all but guarantees that inflation isn't going anywhere," said Chris Rupkey, chief financial economist at global financial group MUFG in New York. "Inflation isn't likely to reappear on the radar screens of Federal Reserve officials for years."
[CORONAVIRUS: Click here for our complete coverage » arkansasonline.com/coronavirus]
Other economists said the June rise in prices would ease concerns that the country could be in danger of slipping into a destabilizing period of deflation, something not seen in the United States since the Great Depression.
"The immediate threat of deflation is over," said Gus Faucher, chief economist at PNC Financial Services Group. "Deflation, when prices are falling broadly, can be disastrous for an economy. It can cause consumers and businesses to put off purchases in the hopes of buying at a lower price later on, exacerbating economic downturns."
With analysts seeing no risk that inflation will suddenly accelerate to worrisome levels, the Fed will have the leeway to keep providing significant support to the economy through record-low interest rates and sizable backed purchases of Treasury bonds and mortgage-backed securities.
In addition to the 5.1% gain in energy costs, food prices were up 0.6% in June after a 0.7% May increase as Americans continued to eat more meals at home amid the pandemic. Such prices were up 5.6% from a year ago, the largest increase since 2011.
Five of the six major grocery store food groups rose in June with beef prices up 4.8% in June, contributing to a 20.4% gain in beef prices over the last three months. The shutdown of several major meatpacking plants because of coronavirus outbreaks contributed to the spike in meat prices.
The cost of services, which make up the majority of the core price index, increased 0.2%. Rent of primary residence rose just 0.1%, the smallest monthly advance since April 2011.
The slowdown likely reflects "a drop in demand in major cities forcing landlords to reduce rents for new tenants," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note.
Car insurance prices rebounded in June after a sharp decline, while prices of apparel and airfares also picked up.
A separate Labor Department report on Tuesday showed average hourly earnings, adjusted for price changes, rose 4.3% in June from a year earlier after a 6.4% gain a month earlier. The figures have been increased by declining numbers of low-wage workers in the workforce.
The government's report on consumer prices followed data last week that showed producer prices declined unexpectedly in June, partially due to a 27.7% slump in the cost of meat. Pricing power has diminished since the economy entered a recession in February, which is seen as a limit to inflation at the consumer level.
As more states started to reopen their economies in June, the pickup in demand for goods and services helped to stabilize prices. At the same time, a spike in the number of covid-19 cases in Sun Belt states including Florida, Arizona and Texas threatens to restrain sales and inflation.
Information for this article was contributed by Martin Crutsinger of The Associated Press and by Olivia Rockeman of Bloomberg News.
