Soaring petrol prices helped drive up US consumer prices last month at the fastest rate in six months, the government said yesterday, but core prices remained tame, easing inflation fears in financial markets.
A separate report showed US consumer sentiment tumbling to a 28-year low this month, with some lessening of expectations on inflation one year out and a steady reading on long-term inflation expectations, which held at a 13-year high.
The Commerce Department said the Consumer Price Index rose a steep 0.6 per cent last month, a touch more than Wall Street had expected, after a modest 0.2pc gain in April.
However, so-called core prices, which exclude volatile food and energy cost, edged up just 0.2pc. Surging petrol prices and soft labour market conditions have depressed consumer spirits.
The Reuters/University of Michigan sentiment index for this month dropped to 56.7 from 59.8 last month. Wall Street economists had expected a decline to only 59.5.
“Today’s inflation numbers do not put any additional pressure on the Fed to hike interest rates,” said Mark Vitner, senior economist at Wachovia in Charlotte, North Carolina. “The Fed is not nearly as behind the curve as some people currently believe.”
The reassuring data followed a series of inflation warnings from central bankers around the globe, and capped off a week in which expectations of higher US rates had climbed sharply.
Energy prices surged 4.4pc last month, the biggest rise since November, after holding steady in April. Gasoline prices spiked 5.7pc, also the biggest rise in six months.
The cost of food rose 0.3pc after climbing 0.9pc in April.
Over the past year, consumer prices have risen 4.2pc on soaring food and energy costs, the highest reading since January. But core prices are up a tamer 2.3pc over the past 12 months, the same as in April.
Officials at the Fed and other central banks have made clear they are on high alert for signs the sharp run-up in food and gasoline prices is bleeding through to other costs, and they will likely welcome the benign reading on core prices.
The US central bank focuses on core inflation in setting interest rates because it believes the sharp price swings food and energy often exhibit can obscure underlying inflation trends.
However, in recent days, Fed officials have cast a wary eye on record-high oil prices and warned about the risk that rising inflation expectations could become self-fulfilling.
“The latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations,” Fed chief Ben Bernanke said.