WASHINGTON, June 14 (AP): Soaring energy costs pushed inflation up in May at the fastest pace in six months. Food costs kept rising, too, and all signs are pointing to more bad news on gasoline, oil and food in the months ahead.
Costs for clothing and prescription drugs did drop last month, but consumer prices rose by 0.6 per cent in all, the biggest one-month increase since November, the Labour Department reported Friday.
Food prices, which had taken the biggest one-month leap in 18 years in April, rose by a more moderate 0.3 per cent in May, but that still left food costs rising at a 6.3-per cent rate so far year, well above last year's increase. People are paying 10.2 per cent more for milk than a year ago.
Consumers are getting hammered by a relentless surge in energy costs, pushing gasoline above $4 per gallon. The rising food prices partly reflect higher costs for transporting products to grocery stores.
Core inflation, which excludes energy and food, edged up 0.2 per cent in May, an increase that was in line with expectations and helped to ease worries in financial markets that the Federal Reserve was inching closer to starting to raise interest rates to combat inflation pressures.
Clothing costs fell by 0.3 per cent and the cost of prescription drugs dropped by 0.7 per cent, but airline tickets jumped 3.2 per cent, the biggest gain in more than six years, again reflecting the surge in fuel costs.
On Wall Street, stocks ended a turbulent week with a big gain, reflecting investor relief that at least the core inflation reading remained well-behaved. The Dow Jones industrial average rose 165.77 points to close at 12,307.35 Friday.
Private economists cautioned that there would probably be more bad news on inflation in the months ahead given that this year's oil shock has gone on much longer than expected.
"Businesses that had been patiently waiting for oil prices to fall have run out of patience. We expect more of them to start throwing in the towel and raising prices," said Kenneth Beauchemin, an economist at Global Insight, noting the announcement by Dow Chemical Co late last month that it was raising prices by up to 20 per cent.
These developments have raised alarm bells at the Federal Reserve, which is now indicating that its biggest concern has changed from worries about a possible recession to fears about higher inflation.
In a speech Monday, Fed Chairman Ben Bernanke said the Fed will "strongly resist an erosion of longer-term inflation expectations," comments that raised concerns in financial markets about interest rate hikes.
