Lower Gas Prices Keep May Inflation Down

The prices consumers pay for products and services rose in May, but not by much. The Labor Department reports May's Consumer Price Index (CPI) rose 0.2 percent, led by food, new cars and apparel.

The decline, the first in six months, was mostly made possible by a one percent decline in the price of gasoline. Fuel costs, which had risen for several straight months, peaked in early May and have been falling ever since.

When the volatile food and energy sectors are excluded from the equation, however, the so-called “core” inflation rate rose 0.3 percent, the biggest jump in nearly three years. That causes economist Joel Naroff, of Naroff Economic Advisors, in Holland, Pa., to view inflation – not as slowing down – but as picking up speed.

“I am not exactly sure what Ben Bernanke is looking at but my view of the inflation situation is it is on a clear upward trend,” Naroff said. “The core will likely reach if not exceed the Fed Chairman?s desired level by the end of the year.  And if the economy does recovery as energy prices decline, look for the core to keep on rising.”

Last month vehicle and clothing costs soared, medical care was, as usual, more expensive, education expenses jumped and the cost of entertainment climbed. The increases may have been modest, but Naroff says prices rose almost across the board.

There was also an indication of what is happening with real estate values. The bottom line, he says, is that the Fed is not likely to raise rates anytime soon.