Consumer prices rose a moderate 0.3 percent in May, the government said Friday in a report dampening fears that inflation was threatening to get out of control.
The small increase in the Labor Department's Consumer Price Index was attributed to moderation in food costs, which helped to offset the first increase in energy prices in six months.In another report, the government said increased use of air conditioners and a gain in auto manufacturing pushed up production at factories, mines and utilities by 0.5 percent in May.
The rise followed a revised 0.3 percent increase in April, which had broken a six-month string of declines, the longest since the 1981-82 recession, the Federal Reserve said. April had originally been estimated as up 0.1 percent.
The CPI report served to alleviate concerns raised by Thursday's unexpectedly sharp 0.6 percent jump in prices at the wholesale level.
Analysts said the CPI report showed that the increase in wholesale prices was caused by statistical quirks and did not filter through to the consumer.
Friday's reports were the latest good economic news. Recent reports have shown consumer spending on the rise, housing construction rebounding and steady declines in the number of new filings for unemployment compensation.
Many analysts believe the various reports are signaling the end of the 11-month old recession.
"It is clear that the recovery has started," said Michael Evans, head of a Washington forecasting company. He said the recession most likely ended in April, although some economists said May will probably mark the turning point and others said it was still to soon to declare the recession over.
However, Wall Street reacted favorable to the good news on inflation and economic growth in Friday's reports. The Dow Jones industrial average was up by more than 28 points at mid-morning.
Given the good news on inflation, the Bush administration is certain to keep pressure on the Federal Reserve to cut interest rates further, contending that such a move will not increase price pressures but will boost growth in the early stages of the expansion.
However, judging from recent comments by Federal Reserve Chairman Alan Greenspan and other top Fed officials, the central bank is unlikely to heed that plea. Fed officials have stressed the dangers of over-staying easy credit policies at turning points in the economy.
The 0.3 percent increase in consumer prices in May followed an even smaller 0.2 percent April increase.
For the first five months of this year, inflation at the consumer level has been rising at an annual rate of just 2.7 percent, far below last year's 6.1 percent increase.