BY KELLY EVANS
Energy and food Costs continue to rise quickly in the U.S., but the prices of other items are being restrained by a faltering econ omy that is helping keep overall inflation in check.
The U.S. Labor Department Friday said the May consumer-price index rose 0.8% from the previous month and was up 4.2% from a year earlier, reflecting surging energy, food and transportation Costs.
But core prices-which exclude food and energy-increased 0.2% last month and rose 2.3% over the year. The data suggest that un denying inflation remains contained, though slightly above the L5%一to-2% range preferred by Federal Reserve officials.
"Inflation is less likely to become the big problem that people fear it will" because wide- spread price and wage increases aren't in place, said Wachovia Corp. senior economist Mark Vitner. "This is really going to be more of a burden on consumers and businesses" that hurts economic growth, he said.
Indeed, a separate survey of consumer sen timent by Reuters/University of Michigan showed it tumbling to a 28-year low, falling to 56.7 in early June from 59.8 in May. Inflation expectations held steady, albeit at high levels, with consumers expecting prices to rise 3.4% annually over the next five to 10 years and 5.1% over the next year.
"The reason why consumer confidence has tumbled is we're spending more money on things we have to buy and less on things we want to buy," Mr. Vitner said, noting that trips to the shopping mall are far more satisfying than trips to the filling station. "That's why consumers are feeling so glum right now."
Deborah Devine, 49 years old, said she is "very depressed" over rising gasoline prices. "I pumped my gas yesterday morning and was sick to my stomach and had tears in my eyes," she said, because it cost her $75 to fill up the tank for her small SUV. "And that's just for a week's worth of driving!"
Ms. Devine, a church business administra tor who lives in Mountville, Pennsylvania, says her husband's job-working for a small, family-owned drywall company-involves a lot of driving in a gas-guzzling truck. "We're lucky they keep him busy," she said. But for the couple, who have two home mortgages, the fuel bills are "almost a third mortgage," she added.
Energy prices are just the latest challenge for consumers already batteredby falling home prices and tighter credit conditions. Consumer spending, the largest driver of eco nomic growth, has so far been surprisingly re siient, but many economists predict it will tail off later in the year as the boost from U.S. government economic-stimulus checks fades.
"The pressures driving consumer spend- ing down have not gone away at all," said Bill Hampel, chief economist at the Credit Union National Association, a Washington-based trade group. He warned that spending and eco nomic growth will slow toward the end of this year and into early next year. "It's going to take awhile for the household sector to get out of this," he said. "We're looking for the econ omy to limp along" through mid-2009.
Odds that Federal Reserve policy makers will increase the target for the benchmark fed- eral-funds rate to 2.25% from the current 2% at their August meeting fell to about 75% from a near-certainty. The rate is the one at which banks lend one another money overnight. A low rate helps stimulate economic activity.
The report showed that energy prices rose 17.4% in May from the previous year while food prices were up 5%. Transportation costs increased 8.1%, partly reflecting airlines' higher fares and added fees.
But as consumers are forced to spend more on fuel and food, they are pulling back on pur chases of other items, and that is restraining prices. The decline in apparel prices contin ued; they fell 0.6% in May from a year ago.
Other prices rose less than consumer prices as a whole. Housing costs, a Labor De partment estimate of what owners would pay to rent their home, rose 3.3% from a year ago, while medical-care prices increased 4.1% and education and communication prices in- creased 1.2%.
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