WASHINGTON — Energy prices are climbing at nearly twice last year's pace and food costs are also ratcheting higher, putting an ever-tighter squeeze on consumers, the government reported Friday.
Most people would consider that bad news for the economy, not to mention average Americans. But Wall Street took solace in the fact that, aside from fuel and food, inflation hadn't spread throughout the broader economy.
That helped trigger a rally in stocks, with the Dow Jones industrial average rising 165.77 points, to 12,307.35.
The market move, which was helped by a drop in crude oil prices, came after the Labor Department reported that consumer prices leaped 0.6% in May, the biggest one-month increase in the so-called headline rate since November.
But stock investors tend to keep a closer watch on the "core" inflation rate, which excludes prices for food and energy. That indicator came in at a modest 0.2%. Some economists think it might allow the Federal Reserve to be less aggressive in hiking interest rates to tame inflation.
"Underlying core inflation remains low and stable," said Mark Zandi, chief economist at Moody's Economy.com. "If you take that by itself, it would suggest the Fed could keep interest rates stable through the end of the year."
As crude oil prices have skyrocketed, sending average gasoline prices past $4 a gallon nationwide, investors have grown increasingly concerned that the Fed was poised to tighten the credit spigot.
Those fears intensified after Fed Chairman Ben S. Bernanke gave a speech late Monday warning of the ongoing danger of inflation.
"Thus far, the pass-through of high raw materials costs to the prices of most other products and to domestic labor costs has been limited," Bernanke said.
"However, the continuation of this pattern is not guaranteed, and future developments in this regard will bear close attention," he said.
For most of the last year, the Fed has been easing credit, hoping to keep the slowing economy from stalling out and to counteract the credit crunch triggered by the collapse of the housing market.
The central bank's benchmark federal funds rate is now just 2%, and its policymaking committee is scheduled to meet this month to evaluate whether it should raise the rate, cut the rate or let it be.
In that context, the news that core inflation was holding steady seemed to suggest that the Fed, too, would hold steady, at least for the time being.
