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Consumer price growth slows as annual core inflation inches up

June 16, 2016

The pace of growth in consumer prices slowed last month as food costs fell, but annual core inflation inched up in a positive sign for a potential Federal Reserve interest rate hike.

The consumer price index, a broad measure of the cost of a variety of household purchases, increased 0.2% in May, the Labor Department said Thursday.

The figure was down from 0.4% the previous month, which was the biggest jump in more than three years.

Despite the slowdown, prices were up for the third straight month. It signaled that inflation is firming after prices declined over the winter.

Moderate price growth is important for the economy, and the modest upward inflation trend could help push Federal Reserve policymakers to increase their benchmark short-term interest rate in the coming months.

The Fed held the rate steady on Wednesday because of concerns about slowing job growth and the potential economic implications of next week’s vote in Britain on whether to leave the European Union.

Inflation has been running well below the Fed’s annual target of 2%. For the 12 months ended May 31, consumer prices increased 1%. That was down from a 1.1% annual rate through April 30.

The Fed uses a different inflation measure that tends to run lower than the consumer price index.

Food prices declined 0.2% in May, after a 0.2% increase the previous month. That offset a 2.3% rise in gas prices and a 0.5% increase in healthcare costs.

Falling gas prices have helped keep inflation low over the last two years, but prices at the pump have been rising recently.

Excluding often volatile energy and food, core prices rose 0.2% in May, the same pace as the previous month.

For the 12 months ended May 31, core prices increased 2.2%. That annual pace was up from 2.1% for the 12 months ended April 30.

jim.puzzanghera@latimes.com

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