US inflation jumps

June inflation was higher than expected

US consumer price inflation jumped in June, as sharply higher energy costs outweighed a decline in the price of clothes, new cars and education.

The Labor Department said the Consumer Price Index (CPI), the nation's broadest gauge of inflation, rose 0.6% last month after a 0.1% increase in May.

Consumer Price Index is main US inflation gauge

But excluding food and energy costs, which are relatively volatile, prices rose only 0.2%, as forecast and the same as the May core figure.

The 0.6% surge in the CPI mostly reflects big rises in petrol and natural gas prices. The steep rise in the price of oil caused by Opec production restrictions has begun to affect petrol prices globally.

The stability of the core rate could provide some comfort to policy makers at the US central bank, the Federal Reserve, as they ponder whether the economy has slowed sufficiently in recent months to make further increases in interest rates unnecessary.

The 0.6% gain was the largest increase in the CPI since March and came in above predictions by Wall Street economists, who in a Reuters survey had forecast 0.4% for June.

Annual rate

On the year, the CPI was up 3.7% last month, matching the March figure, while the core rate was 2.4%.

The last time the annual inflation rate was higher was in 1991.

In May, the CPI rose 0.1% and was up 3.1% year-on-year, while the core rate was up 0.2% and 2.4% on the year.

Over the first six months of the year, the CPI rose at a 4.2% annual pace, compared with a 2.2% gain over the same period last year.

The core rate increased at a rate of 2.6% over the first six months, up from a 1.7% rate over the same period in 1999.

Recent economic indicators had suggested the economy was cooling sufficiently to reduce concerns over inflation, and hence fears of further interest rate rises.

The Federal Reserve has raised interest rates six times in the past 13 months to try to stop the economy overheating.

The June CPI figures do not necessarily contradict this trend as the inflationary pressures are specifically linked to the soaring rise in energy prices, but the market reaction indicated renewed worries about interest rates.

Now, attention will turn to Federal Reserve chairman Alan Greenspan's keenly awaited testimony on monetary policy to the Senate Banking Committee on Thursday at 1400 GMT.