WASHINGTON - Soaring energy prices punished ordinary Americans in May, triggering the highest run-up in inflation in six months, the government said yesterday in a report that exceeded the expectations of economic forecasters.
Consumer prices rose a sharp 0.6 percent, as measured by the Labor Department's consumer-price index. Since May 2007, prices are up 4.2 percent, slightly above the 4.1 percent rise in prices for 2007.
Those annual numbers reflect the rise in all prices across the economy, and don't necessarily capture the pain that many Americans are feeling at the cash register.
For example, food prices are up 5 percent since May 2007 - more for staples such as eggs, up 18.2 percent; white bread, up 15.6 percent; and fresh whole milk, up 10.5 percent.
In addition, the overall inflation number is being held down by falling prices for homes and rentals.
Yesterday's inflation report underscores the dilemma the Federal Reserve now faces: To spark economic activity by lowering short-term interest rates, it has aggressively slashed its benchmark lending rate to 2 percent from 5.25 percent since September. But that risks inflaming inflation.
One source of comfort for the Fed in the new report is the "core" inflation rate, which strips out volatile food and energy prices to measure the more-stable broad price level. While it remained in May elevated slightly beyond the Fed's comfort zone of a 2 percent annual rate, the pace is moderate: The core rate rose just 0.2 percent last month and 2.3 percent since May 2007.
That suggests that high energy prices are not yet excessively feeding into the cost of manufactured goods.
"While core CPI rose at an elevated pace relative to the Fed's longer-run objective, the large energy cost increases did not translate into notable generalized price pressure in the month," Peter Kretzmer, an economist with Bank of America, wrote in a research note to investors.
Still, most economists believe that the Fed will be forced to raise interest rates by autumn, though probably not at its June 24-25 meeting.
Food prices, which had taken the biggest one-month leap in 18 years in April, rose by a more moderate 0.3 percent in May, according to yesterday's report.
The increase in energy prices was led by a 5.7 percent jump in gasoline, the biggest one-month rise since last November, and gains of 0.9 percent for electricity, 10.4 percent for home heating oil and 5.6 percent for natural gas.
The 0.3 percent rise in food costs reflected a 1.5 percent jump in beef costs, the biggest in 13 months, and another steep increase in cereal and bakery products, which were up 1.6 percent.
Clothing costs fell 0.3 percent and the cost of prescription drugs dropped 0.7 percent, but airline tickets jumped 3.2 percent, the biggest gain in more than six years, again reflecting the surge in fuel costs.
Private economists cautioned that there probably would be more bad news on inflation in the months ahead given that this year's oil shock has gone on much longer than expected.
"Businesses that had been patiently waiting for oil prices to fall have run out of patience. We expect more of them to start throwing in the towel and raising prices," said Kenneth Beauchemin, an economist at Global Insight, noting the announcement by Dow Chemical Co. late last month that it was raising prices by up to 20 percent.
If more companies do that, it would fit the definition of inflation - a general rise in prices across the board.
Already, that trend is showing up. The May survey of small business owners by the National Federation of Independent Business, released Wednesday, found that 23 percent of firms polled reported higher selling prices. And 17 percent now cite inflation as their chief concern, the highest such reading by the federation since 1982.