The Consumer Price Index rose more sharply last month than at any time in nearly a year, but most of the rise was attributed to a more than 17 percent spike in gasoline prices, the Labor Department said Wednesday.
Meanwhile, the Federal Reserve on Wednesday forecast the economy will contract at a slower rate than it thought previously, while unemployment will top 10 percent after hitting a 26-year high of 9.5 percent last month. The Fed also reported
that industrial production dropped in June but the pace of the decline was moderate, a possible sign that the recession is waning.
Inflation at the consumer level rose by 0.7 percent last month, slightly higher than the 0.6 percent increase that economists had forecast. It was the biggest one-month gain since a similar one last July.
June's increase is considered temporary, however. The bulk of the rise was due to soaring gasoline prices, and the core measure of inflation remained relatively tame.
Gasoline prices jumped 17.3 percent last month, the largest increase since September 2005, the Labor Department said. Since then, pump prices have leveled off.
New car prices increased by 0.7 percent in June, and clothing costs were up by the same amount. By contrast, airline fares were down by 0.6 percent. Price increases were also moderate in the health area, with medical care edging up by 0.2 percent, the smallest gain in three months.
Stripping out energy and food prices, the core measure rose by just 0.2 percent in June, slightly more than the 0.1 percent forecast. Core prices compared with a year ago rose 1.7 percent, the smallest rise since a matching gain in January.
Compared with a year ago, consumer prices have fallen 1.4 percent, the biggest decline since January 1950, when prices fell 2.1 percent, a Labor Department official said. Gasoline prices compared with a year ago were 34.6 percent lower.
In an effort to stimulate the economy and spur lending, the Federal Reserve pushed its target for the federal funds rate to near zero in December, and it is expected to remain there until the nation's unemployment rate, currently at a 26-year high of 9.5 percent, stops rising.
On Wednesday, the Fed reported that production at the nation's factories, mines and utilities fell 0.4 percent last month as the recession continued to weigh on demand for cars, machinery and household appliances. Even so, it was less than economists had forecast.
But the decline was not as bad as in May, when industrial activity posted a revised 1.2 percent drop.
In the second quarter of the year, industrial production fell at an annual rate of 11.6 percent, not as sharp as the 19.1 percent annualized decline experienced during the first three months of the year.
Production at factories — the biggest slice of the industrial sector — fell by 0.6 percent in June, compared with a 1.1 percent decline in May. Troubles in the auto sector also likely factored into June's weakness, economists said.
The Fed on Wednesday also narrowed the range of its forecast for economic growth this year, predicting it will shrink between 1 and 1.5 percent instead of the 1.3 to 2 percent forecast earlier. The central bank also predicted that unemployment would touch 10.1 percent — higher than its earlier forecast of 9.6 percent.
From NPR staff and wire service reports
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