Updated from 9:31 a.m. EDT
Consumer prices edged up only slightly in May, as a dip in prices for gasoline, transportation, tobacco and apparel offset still-rising prices for housing and food.
Consumer Price Index
, a broad measure of U.S. inflation, rose 0.1% in May after a flat reading in April, the
reported Wednesday. The core CPI, which excludes the often erratic prices of food and energy, ticked up 0.2%, matching April's increase.
The overall rate of inflation came in slightly below the 0.2% prediction of a
poll of economists, while the core rate matched expectations.
The data point to a still-benign pricing picture for U.S. consumers, and many believe it could be enough to prompt
policymakers to take a hiatus from their inflation-fighting efforts to raise interest rates when they meet later this month.
So far this year, consumer prices have risen at an annual rate of about 3.6%, largely due to rising energy costs as oil prices rose sharply from last year's depressed levels. Inflation rose at 2.7% for all of 1999.
Even as the U.S. economy has grown at lightning speed in recent years, inflation has remained largely under control. Economists and policymakers have credited solid growth in productivity, a measure of workers' output, as the reason that businesses have been able to pay higher salaries and benefits to employees without pushing the costs along to their customers.
But the Fed, fearful that inflation has remained a threat due to elements of the racing economy such as historically low unemployment, heavy levels of consumer spending, and a booming housing market, has steadily raised the short-term federal funds rate, which acts as a basis for other interest rates. In its most recent move on May 16, the Fed doubled the magnitude of its rate hike to half a percentage point after five previous quarter-point rate hikes seemed to be having little effect on the economy.
Some portions of the economy have finally been showing some degree of response to higher rates, and could be posing less of a threat of inflation. Recently, some signs of easing inflationary pressure have been a two-month decline in retail sales, a slower pace of orders for big-ticket items, and an uptick in the May unemployment rate.
"We've had a month's worth of numbers signaling that the economy may finally be cooling and inflation is still being held at bay," said Oscar Gonzalez, economist at
John Hancock Financial Services
Even though the Fed may be on hold in the short term, however, economists and policymakers are not completely convinced that the threat of inflation is gone. Recent talk from Fed officials indicate that central bankers are pleased with recent signs that the economy is slowing and inflation is still at bay, but are ready to strike on any renewed signs of price pressure.
"The Fed has been burned many times before in looking for a sustained growth slowdown," said Joe LaVorgna, senior U.S economist at
, who noted that the fight to prevent inflation may not yet be over.
But some elements of May CPI suggest that the consumer spending spree of recent years might be convincingly slowing as a result of the Fed's campaign of interest rate hikes. In theory, higher interest rates have a chilling effect on consumer spending by making it more costly for consumers to borrow.
In May, prices for apparel dipped 0.2% and prices for transportation fell 0.5%. That helped to offset the continued rising in housing costs, which rose 0.2%. Activity in the housing market, which accounts for nearly 40% of the CPI, has clearly slowed in recent months, but still-heavy demand for houses is still allowing prices to continue rising.
Energy prices fell a sharp 1.9% in May, largely due to a 3.5% drop in gasoline prices after oil prices backed off their early-year highs.
Food prices jumped a staggering 0.5% in May, the largest increase in food prices since October 1998.