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Core CPI up, gas down

By Sheyna Steiner · Bankrate.com
Wednesday, June 15, 2011
Posted: 9 am ET

Costs to consumers inched up in May, the core Consumer Price Index rose 0.3 percent. That represents the biggest increase in consumer costs minus food and energy since July 2008 according to the Department of Labor.

Prices for clothing, shelter, new cars and recreation all went up in May, as did the price of food. Meats, poultry, fish and eggs saw the most increase.

There was some good news that most consumers have probably already noticed: gasoline prices decreased for the first time since last summer.

Unfortunately the costs for household energy did go up.

Though rising inflation could signal some good news for savers waiting for an interest rate hike, the timing is particularly bad with other economic indicators pointing to a soft spot in the recovery.

The Federal Reserve, the agency assigned to control inflation, may find itself in a tight spot at next week's rate-setting committee meeting. The $600 billion quantitative easing program is slated to close at the end of this month and some analysts have floated the idea that QE3 should be on the way but inflation will make that difficult.

From the Financial Times story, "U.S. inflation rises faster than expected:"

Analysts said the increase in core prices -- the Federal Reserve’s preferred inflation measure -- would make it even more unlikely that the US central bank would launch another round of quantitative easing.

“High commodity prices are filtering into consumer prices even without any US wage pressures which the inflation doves have been hanging their hat on”, said Peter Boockvar, equity strategist at Miller Tabak. “The inflation data also make the Fed’s job that much more difficult as stagflation is now a growing reality and the inflation part ties the hands of the Fed to react with more easing.”

There's no doubt that the rise in inflation will be addressed when the Federal Reserve Open Market Committee meets next week. Stay tuned for that -- Bankrate will be hosting a live feed of Fed chairman Ben Bernanke's press conference and a live chat.

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