Fuel costs push US prices higher

US consumer prices rose at their fastest pace in June for nearly a year, prompted by higher petrol prices, the Commerce Department has said.

The Consumer Price Index rose 0.7% last month, after May's rise of 0.1%. The figure was slightly above the 0.6% increase analysts had expected.

But the rise is viewed as a blip, as petrol prices rose 17.5% last month.

However, the index was down 1.4% from the same period a year earlier when energy costs were higher.

This is the largest year-on-year decline in nearly six decades.

Oil volatility

Energy prices have fallen considerably since last year, but have shown significant volatility in recent weeks.

"Inflation has neither gone away nor become a problem"

In July last year, oil prices reached a record high of above $147 a barrel, but by the end of 2008 prices were below $40 a barrel. In recent weeks oil has been trading at about $60.

Core consumer inflation - which excludes volatile energy and food prices - rose 0.2% in June - just above forecasts of 0.1%. Year-on-year the rise was 1.7%.

"Inflation has neither gone away nor become a problem," said Joel Naroff of Naroff Economic Advisors.

"Investors should like this report as it basically says the Fed is free to do what it has to in order to get the economy going faster."

Production falls slowing

Separate figures released on Wednesday showed that while US industrial production continued to fall in June, the rate of decline slowed.

Production fell 0.4% last month, following May's revised 1.2% decline, said the Federal Reserve.

On a sector-by-sector basis, manufacturing output fell 0.6% last month, while mining production dropped 0.5%. By contrast, the utilities industry saw output rise 0.8%, helped by the higher energy prices.

The most recent official figures showed that the US economy contracted at an annualised rate of 5.5% in the first three months of 2009, less than the previous estimate of a 5.7% decline.

This was also an improvement on the 6.3% contraction seen in the last quarter of 2008.

Both the Federal Reserve and US government have said that the economic picture is now starting to improve, albeit slowly.

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