By CHRISTOPHER S. RUGABER
WASHINGTON – Americans paid more for food, cars and clothing in May. But overall consumer prices rose by the smallest amount in six months, slowed by the first drop in energy costs in nearly a year.
The Consumer Price Index rose 0.2 percent in May, the Labor Department said. That’s down from April’s 0.4 percent increase. Food costs rose 0.4 percent, while energy costs fell 1 percent.
So-called “core” prices, which exclude volatile food and energy, rose 0.3 percent, the most in nearly three years.
A separate report from the Federal Reserve showed that U.S. factories produced more goods in May. The 0.4 percent increase showed the industry is rebounding after supply disruptions stemming from the Japan crises and tornadoes in the South cut output in April – the first decline in 10 months.
A rise in business equipment and construction materials offset the second straight decline in auto production, which continued to be hampered by parts shortages out of Japan. Overall industrial production was basically flat for the second month in a row. It was dragged down by a decline in utility activity caused by milder spring weather.
Autos and apparel drove core consumer prices higher. New car prices rose 1.1 percent last month, after rising 0.7 percent in April. Auto dealers have fewer popular fuel-efficient models on their lots because of the supply disruptions. As a result, they are offering fewer deals to boost sales.
Clothing rose 1.2 percent in May, a result of higher cotton prices and increasing labor costs overseas, where most U.S. apparel is made.
Consumer prices rose 3.6 percent from June 2010 through May 2011, the biggest one-year gain since October 2008. The yearly gain in the index was only 1.1 percent as recently as November.
Excluding the volatile food and energy categories, which account for about 20 percent of the index, so-called “core” prices rose only 1.5 percent in that same period. That’s below the Federal Reserve’s informal inflation target of about 2 percent.
Inflation “is probably now close to peaking,” said Paul Ashworth, an economist at Capital Economics. “While the bigger monthly rise in core prices is a concern, a lot of it was due to temporary factors that could be reversed in the next few months.”
Some inflation can be healthy for the economy because it encourages people to spend and invest rather than sitting on their cash. More spending drives corporate growth, which makes businesses more likely to hire people.
But higher food and gas prices have slowed growth this year. Consumers have had to spend more at the grocery stores and to fill their tanks, leaving less money for spending on other goods and services, like appliances, furniture and vacations, that drive the economy.
There are signs that those prices are easing, and if they fall further, that could lift consumer spending and boost growth in the second half of the year.
Gas prices reached a national average of $3.98 per gallon May 6, driven higher by overseas demand and turmoil in the Middle East. Since then, the average price has fallen to just under $3.70. That’s still $1 higher than a year ago.
Wholesale food prices, meanwhile, fell 1.4 percent in May, the steepest drop in nearly a year, the government said Tuesday. Much of that decline resulted from a sharp fall in vegetable and fruit prices. Most economists expect overall food prices to stabilize later this year.
Changes in grain and corn prices take longer to filter down to grocery stores than changes in oil prices do to gas stations. That’s because grains and other commodities represent a smaller fraction of food costs in the U.S than in other countries. By contrast, oil prices are the biggest factor in the cost of gas.
Corn, wheat and other agricultural commodities have risen sharply in price since last summer. Bad weather in several countries and rising demand in fast-growing developing markets are to blame. But those increases have slowed in recent months.
Slower inflation would leave Americans with more money to spend to stimulate the economy, including keeping more of a cut in Social Security taxes that took effect in January. Economists expect the increased spending to raise overall economic growth to an annual rate of 3 percent in the second half of this year. In the first three months of this year, it was 1.8 percent.
A report late Monday by the U.S. Agriculture Department showed that the corn crop has weathered recent flooding along the Mississippi River better than many analysts expected. That sent corn prices down 27 cents to $7.56 a bushel on Tuesday, though that is still more than double what it was a year ago.
Federal Reserve Chairman Ben Bernanke has said that the rise in food and gas prices would likely be temporary. The central bank has also said it is watching closely for any signs of persistent inflation.
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