Natural Gas, Gasoline Prices Fuel 0.3% Jump in Inflation

Consumer inflation was up 0.3% last month, pushed higher by another increase in gasoline prices and the biggest rise in the cost of natural gas in nearly 14 years.

The Labor Department reported Wednesday that the May increase in its consumer price index was a tad slower than the 0.4% gains registered in both March and April.

But the slight slowdown failed to soothe inflation jitters in the bond market, where investors are convinced that a rebound in economic activity is going to push the Federal Reserve Board to begin raising interest rates.

The Treasury’s benchmark 30-year bond, a key determinant of long-term borrowing costs, climbed to 7.19%, the highest level in more than a year and up from 7.12% on Tuesday.

Stocks fell victim to the worsening mood of the bond market, finishing with the Dow Jones industrial average down 0.37 point at 5,668.29.

For the first five months of this year, consumer prices are rising at an annual rate of 4.1%, sharply above the 2.5% increase turned in for all of 1995.

But excluding food and energy, the so-called core rate of inflation was rising at an annual rate of 3%, matching the increase for all of 1995.

Bruce Steinberg, an economist at Merrill Lynch, said the core rate of inflation shown in both the CPI and Tuesday’s report on wholesale prices showed that underlying price pressures continue to remain at the lowest rates since the 1960s.

Analysts said there were signs that the sharp jump in energy prices seen so far this year was already abating as ample world supplies of oil have sent crude prices down by $5 per barrel, a change they predicted motorists would soon start to see.

For May, gasoline prices climbed 2.5%. Pump prices are up 18.2% since December.

Food prices showed some moderation in May, rising by only 0.1%. This reflected declines in both fruit and vegetable prices.