The inflation rate hit its fastest clip in six months in May, but the government's report on consumer prices on Friday also showed that soaring food and energy prices aren't spilling over into other areas.
The Labor Department reported that its consumer price index rose by 0.6% last month, its biggest jump since last November. Gasoline prices surged by 5.7%, while food prices were up 0.3%.
Excluding food and energy, the core reading of the consumer price index showed an increase of only 0.2% in May, suggesting that the relentless rise in commodity prices had yet to stoke widespread inflation.
So far this year, consumer prices are rising at an annual rate of 4%, compared with a 4.1% increase for all of 2007.
The report comes as the
has slashed its key short-term interest rate target by 325 basis points amid Wall Street's credit crisis since last fall, raising the money supply to cushion financial markets from a liquidity squeeze. The central bank's action has also contributed to rising prices, leading critics to call for tighter monetary policy to head off an outbreak of inflation.
Stocks opened higher Friday as investors drew comfort from the tame reading on core inflation, which could take some pressure off the Fed to hike rates.
Ian Shepherdson, chief U.S. economist at High Frequency Economics, said in a note to clients that the report showed that a "rate hike makes no sense."