Updated from 10:07 a.m. EDT
Consumer prices climbed in June for their biggest gain in three months, but much of that increase was caused by an 8.8% surge in gasoline prices.
consumer price index
, a broad measure of price inflation, rose 0.6%, a sharp acceleration from May's 0.1% rise. But the core inflation rate, which strips out volatile food and energy costs, rose only 0.2% for the third consecutive month, the
Economists polled by
had been expecting a 0.4% increase in the overall consumer price index and a 0.2% rise in the core rate.
Although recent spikes in energy prices have affected most Americans, the tame core rate of the consumer price index suggests that the U.S. economy continues to experience little significant inflation, even though the slow upward creep of the core CPI is likely catching the eyes of economists and policy makers. In June, the core CPI ran at a 2.4% annual rate, vs. 1.9% for all of 1999.
Energy prices have fluctuated wildly in recent months, mostly because of wrangling within the
Organization of Petroleum Exporting Countries
about how much it should increase oil production this year. Oil prices rose last month while markets pessimistically awaited a late June meeting of OPEC. Prices dropped slightly from their highs following OPEC's announcement that it would
increase its production quotas by roughly 700,000 barrels a day. But oil prices have since seen wide
swings as some producers consider further production increases.
So far, the rise in energy prices have had only a moderate influence on other areas of the economy. Transportation costs, which are influenced by energy prices, rose 1.8% in June, after falling 0.5% in May and 0.7% in April. That includes a 1.5% increase in airfares.
"The underlying trend in inflation is definitely higher this year," said Joe LaVorgna, senior economist at
. "The big question is whether the core CPI will continue to rise, lifted in part by an energy spillover."
But some economists argue that the rise in airfares might also be related to another trend, in which labor-intensive service businesses, such as the airline, medical and education industries, are facing price pressure as they try to pass along the burden of rising workers' salaries.
"Whatever degree of inflation we are seeing is more of a services story," said Daniel Laufenberg, chief economist at
American Express Financial Advisors
. "Intense competition from around the world is continuing to keep goods prices low, but services are under pressure because of the ongoing labor conditions." He noted that other labor-intensive areas, such as medical care, are also seeing steady price increases.
In other areas, however, consumer costs remained subdued or even fell. Apparel prices fell for the third straight month, dropping 0.6% following a 0.2% decline in May. Other declines in June included a 2.8% drop in personal computer prices, a 1.3% drop in phone service prices and a 1.3% drop in tobacco prices.
The benign rate of core inflation is not likely to alarm
policymakers, who have raised interest rates six times in the past year in an attempt to quell consumer and business demand and avoid inflation.
In theory, higher interest rates slow demand by making it more costly for consumers and businesses to borrow and spend, decreasing the risk of inflation. But the lack of significant inflation outside of oil prices, along with "tentative and preliminary" signs of an economic slowdown identified by the Fed, persuaded policymakers to leave rates unchanged when they last met.
Economists now have mixed opinions about whether the Fed will continue to raise rates when it meets next in August, and are hoping to glean a better understanding when Alan Greenspan, the Fed's chairman, gives his semi-annual report to Congress on Thursday.
"The future of monetary policy depends on how far the Fed will allow the rate of inflation rate to advance -- that is, at what annualized inflation rate does the Fed consider its goal of price stability to be threatened?" wrote economists from
the Dismal Scientist
, a Web site focusing on economics. "If the annualized CPI rate remains above the 3.5% range, it is likely only a matter of time before the Fed moves again."