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Inflation Gauge Up 0.2% in May

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From Reuters

Prices on U.S. core consumer goods rose mildly in May, and consumers’ inflation worries eased and their economic outlook improved in June, according to private and government data released Friday.

The core price index on personal consumption expenditures rose 0.2% in May, matching analysts’ forecast. The core gauge, which excludes food and energy prices, was up 2.1% compared with a year earlier, matching April’s advance, the Commerce Department said.

The index, which is the Federal Reserve’s preferred inflation measure, suggested that core inflation remained contained, a view expressed in the Fed’s policy statement accompanying its widely expected decision Thursday to raise its benchmark interest rate by a quarter-point to 5.25%.

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Nevertheless, U.S. rate futures signaled that traders saw a strong possibility of another quarter-point hike by the Fed at its Aug. 8 meeting.

“The data are still pointing to a potential move in August,” said Anthony Chan, chief economist at JPMorgan Private Client Services in Columbus, Ohio.

Friday’s data depicted a mixed picture of U.S. consumers.

The University of Michigan’s consumer sentiment index ended at 84.9 in June, up from the final May reading of 79.1.

Consumers’ mood may have improved, but their spending has not picked up, which could hamper overall economic growth in the second half of the year, analysts say.

The Economic Cycle Research Institute said its index on U.S. economic growth slipped to 136 last week from a downwardly revised 136.7 the week before.

Stubbornly high gasoline prices have pinched household budgets, as inflation-adjusted spending advanced just 0.1% in May, the Commerce Department said in its report. Retail gasoline prices were up nearly 30% from a year earlier.

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“Gas prices were up so much in May that once we finished filling our tanks there was little money left for anything else,” Christopher Low, chief economist at FTN Financial, said in a report.

This also meant that Americans borrowed more and saved less to support their shopping habits.

The personal saving rate -- saving as a percentage of disposable income -- slipped to a negative 1.7% in May, the lowest since a hurricane-related record low in August.

Business activity in New York and the Midwest expanded in June, according to data from two regional manufacturing groups.

However, the latest readings from the National Assn. of Purchasing Management-Chicago raised worries among analysts of slowing growth and a resurgence in price pressure in the U.S. manufacturing sector. They said the surge in producer prices could push its way into consumer prices.

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