NEW YORK ( TheStreet) -- Inflation in May rose by 0.2%, according to the Department of Labor's latest read on consumer prices.

The slight hike came in worse than the forecasted 0.1% rise. Increases in clothing, housing and car costs, as well as food and household energy prices, drove up overall inflation. While airline, tobacco and personal care costs declined, they did not offset the usual inflationary pressures.

The latest up-tick in the consumer price index continues a narrative of inflation from April and May, which saw increases of 0.4% and 0.5%, respectively.

Core inflation, which strips out volatility from food and energy prices, ticked up by 0.3%, also a notch higher than the expected. Economists were predicting a 0.1% rise. The government watches core inflation carefully because it is considered the closest gauge of inflationary pressures. Core inflation rose 0.2% in April and 0.1% in March.

"The numbers reiterate the concern of stagflation," said Jay Suskind, senior vice president at Duncan Williams. "We can talk about core inflation, but let's face it, food and energy costs are the main expenses for the average person every day and those prices are through the roof," he added.

Williams predicts that the markets won't applaud this latest round up of consumer prices. "Yesterday's market rally will be more of a 'dead-cap bounce'," he said.

The Dow's positive gains yesterday were seen as a relief after a two-week losing streak. Today's markets have already opened lower, suggesting that fears of a slow patch in the economic recovery have returned.

"The consumer price index on a year-to-year basis is the highest in a couple of years," said Suskin. "Now the concern is that we're not at the end of higher prices, we're at the beginning." On a yearly basis, the consumer price index for May rose 3.6%.

Gas prices in May decreased for the first time since June 2010. However, consumers still felt a hit as household energy prices for May still saw a 0.5% uptick. Electricity prices rose 0.8%, offsetting declines in oil and natural gas.

The disappointing results in consumer inflation hit this morning's headlines along with a report showing poor performance in New York's manufacturing sector. The worse-than-expected numbers for industrial production didn't take any of the sting away. By far, signs are pointing to a troublesome economy.

-- Written by Chao Deng in New York.

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