Consumer prices on rapid rise

WASHINGTON — Consumer prices advanced in May at the fastest pace in more than three years, as rapidly increasing food and fuel costs forced Americans to dig deeper into their pockets.

But even with the pickup, Federal Reserve Chairman Alan Greenspan said Tuesday that he and his Fed colleagues aren’t worried that the country is on the brink of an unwanted surge in inflation.

The Consumer Price Index, the government’s most closely watched inflation barometer, rose 0.6 percent last month, the largest increase since January 2001 and up from a 0.2 percent rise in April, the Labor Department reported.

However, the “core” rate of inflation, which excludes volatile food and energy prices, increased by only 0.2 percent in May, down from a 0.3 percent rise the month before. From an economic point of view, that suggested prices of other goods and services were more subdued — an encouraging sign that inflation is not a danger to the economy, analysts said.

Nonetheless, the latest snapshot of the nation’s inflation climate would justify a move by the Federal Reserve to raise interest rates for the first time in four years when it meets later this month, economists said.

Some companies are finding it easier to raise prices now that the economy is strengthening — something they found hard to do during the economic slump.

Appearing at a Senate hearing on his nomination to a fifth term as Fed chief, Greenspan said he and his colleagues still hold the view that “inflationary pressures are not likely to be a serious concern in the period ahead” and they probably can boost interest rates gradually to head off inflation. If their forecasts, however, turn out to be wrong, Greenspan again suggested as he did last week that more aggressive action could be taken.

Economists widely expect the Fed will boost short-term interest rates, currently at a 46-year low of 1 percent, for the first time in four years on June 30 — now that the economic recovery is firmly rooted. Most economists are forecasting a one-quarter percentage point increase. A few are predicting a bolder, half-percentage point move.

Analysts don’t believe inflation currently threatens the recovery, but the upward pressure in that area marks a big change in the pricing climate from a year ago. The Fed then was worried about the prospects of deflation, which is a prolonged and widespread price decline.

For the first five months of this year, consumer prices rose at a seasonally adjusted annual rate of 5.1 percent, exceeding the 1.9 percent increase for all of last year. Core prices increased at a rate of 2.9 percent, compared with a 1.1 percent advance registered for 2003.

Still, by historical standards, the current rate of inflation is still considered relatively low, analysts said.