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Food, Gas Increases Push Price Index Up a Sharp 0.6% in May

June 16, 1989|From Associated Press

WASHINGTON — Consumer prices rose a sharp 0.6% in May, pushed up by strong increases in food and gasoline costs, the government said today.

The rise in the Consumer Price Index, the government's primary gauge of inflation at the retail level, followed an even stronger 0.7% April increase that was the largest jump in more than two years, the Labor Department reported.

During the first five months of the year, consumer prices rose at an annual rate of 6.7%, a significantly faster pace than the 4.4% price increases registered in 1987 and 1988.

Inflation at the wholesale level has been even stronger, rising at an annual rate of 9.4% so far this year.

'Grossly Exaggerated'

"Reports of inflation's demise have been grossly exaggerated," said economist David Berson of the Federal Home Loan Mortgage Corp. "The core rate doesn't appear to have subsided and, with the economy running close to full employment, will edge up as the year goes on."

Despite the persistently strong price increases, some other analysts believe that inflation now may begin to level off and that it could start to drop again late this year.

"It's not a good report, but we can look forward to a plateauing of this increase," said Stacy Kottman, research director at the Economic Forecasting Center at Georgia State University. "In the last half of 1989, the (inflation) range will come down."

Today's report will be closely scrutinized by the Federal Reserve Board, which last week slightly eased its grip on the money supply in the belief that the slowing economy will help to tame inflation.

Energy Costs

In May, the overall inflation rate was heavily influenced by a 1.6% increase in energy costs. These costs had shot up 5.1% in April, when there was an all-time record increase in gasoline prices of 11.4%.

Last month's increase in gasoline costs was a still-strong 3.9%, which accounted for about one-fourth of the overall increase in the CPI for May.

Food and beverage prices, meanwhile, increased 0.6% last month after rising 0.5% in April. The May increase included a sharp 3.2% jump in prices for fruits and vegetables. Beef prices rose 0.5% and poultry prices 3.2%.

Excluding the volatile food and energy categories, other consumer prices rose 0.5% in May, up from a 0.2% increase in April. Many analysts closely watch these figures and believe that they represent the important "core" level of inflationary pressures in the economy.

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