MercoPress. South Atlantic News Agency

Energy and housing fuel US May inflation

United States consumer prices climbed 0.4% in May, driven by a sharp rise in energy costs and housing, reported Wednesday the Department of Labor.

Core inflation which does not include food or energy costs, soared 0.3% for a third consecutive month increasing speculation that the US Federal Reserve will raise interest rates when it meets later this month.

The rising cost of renting home and apartments caused around half the rise on the core index, the Labor department said. This brought the core annual rate up to 2.4%, the highest since early 2005, and well above the level the US central bank, the Federal Reserve, believes is non-inflationary. Overall inflation in the last twelve months stands at 4.2%.

Stock markets around the world have been nervous in recent weeks that worldwide interest rates are likely to rise further, which would weaken the prospect for corporate profits.

The latest report from the Federal Reserve, the Beige Book indicates that US consumers are showing signs of caution as energy prices rise. Particularly hard hit are lower income families with a decline of sales in low price discount stores.

"High gasoline prices were cited by a few districts as changing purchasing patterns or clouding the outlook for sales," the Fed survey said. As well as fuel, the price of oil-based products, metals and many building materials had risen over the past three months, the Fed said.

The Beige Book is based on information from 12 regional Federal Banks and aims to give a snapshot of the US economy. In four of the 12 regions surveyed a slowdown in activity was reported while seven districts said activity had remained unchanged and Philadelphia was the only area to report an improvement.

Concerns about rising inflationary pressures have pushed the central bank to raise rates at its past 16 meetings, to five year highs of 5%.