Business

Inflation is held in check as prices edge higher

Consumer prices rose less than expected in May and posted the steepest annual drop in 59 years, according to government data released Wednesday, fresh evidence that the recession is keeping inflation in check.

Low prices will make it easier for the Federal Reserve at its meeting next week to keep a key short-term interest rate near zero, where it has been since December. Bond yields ticked up earlier this month on concerns that signs of an improving economy would force the Fed to raise rates later this year.

But most economists consider a rate increase unlikely until next year.

Still, as higher government spending pushes this year's deficit toward a record of nearly $1.85 trillion, many economists warn that inflation could be a threat in two to three years.

"Inflation may be coming, but it's not here yet and likely won't be for some time," Richard Moody, chief economist at Forward Capital, wrote in a note to clients.

The Labor Department reported that the consumer price index rose a seasonally adjusted 0.1 percent last month, below analysts' expectations of a 0.3 percent rise.

Excluding volatile food and energy costs, core prices also increased 0.1 percent, matching expectations.

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