Prices dip; factory output rises
May reports suggest oil price woes eased and growth resuming
WASHINGTON -- Consumer prices in May posted the first decline in 10 months as energy costs staged a sizable retreat. And the pace of activity at US factories jumped sharply.
A variety of reports released yesterday depicted an economy shaking off the effects of an oil-price surge in the early spring and resuming solid growth.
But private analysts cautioned that even with May's big drop in energy prices and the rebound in industrial production, the economy remained vulnerable to further oil price increases in the months ahead.
Still, ''We really have a tight energy market because demand is pressing up against the capacity to produce," said Nigel Gault, chief US economist for Global Insight, a forecasting firm. ''Where we would really be in trouble is if there is a terrorist attack or some sort of natural disaster that affected oil production."
The Labor Department reported that its closely watched Consumer Price Index fell by 0.1 percent in May, following significant increases in the previous three months that had been driven by higher energy costs. Crude oil prices hit an all-time high of over $57 per barrel in early April.
But energy prices fell in May, led by a 4.4 percent drop in the price of gasoline.
Meanwhile, production at the nation's factories, mines and utilities rose by 0.4 percent, double the gain analysts had expected. It reversed a 0.3 percent drop in industrial production in April and reflected a surge of 0.6 percent in output at American factories.
The overall gain in industrial production was led by a 0.6 percent increase in manufacturing output, the strongest performance in this sector in seven months and came after two back-to-back declines had raised worries about whether US manufacturing, the hardest hit part of the economy in the 2001 recession, was again faltering.
Economists said the Federal Reserve was likely to see the new economic data as providing support for the central bank's current course of raising interest rates gradually to make sure inflation remains contained.
They predicted a ninth quarter-point rate hike on June 30, which would push the federal funds rate to 3.25 percent.
