Consumer prices rise 5% in year

WASHINGTON - US consumer prices surged 5 percent in the past year, the biggest jump since 1991, just when households struggled with falling home values and the credit crunch.

Spiraling expenses for food and fuel spurred the increase in June, the Labor Department said yesterday. The cost of living rose 1.1 percent from May, more than forecast and the second-largest rise since 1982. Separate figures showed industrial production rose more than estimated because of the end of a strike at American Axle & Manufacturing Holdings Inc. and increased electricity output.

Price gains accelerated last month even after stripping out energy and food, underscoring the challenge for Federal Reserve chairman Ben S. Bernanke as he attempts to steer the economy through the slowdown and credit crisis.

"This is a problem for the economy; it's even worse for the Fed," said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pa. "Inflation numbers are high enough that under different circumstances the Fed would be hiking rates."

Excluding food and energy, so-called core costs climbed 0.3 percent in June from the previous month and 2.4 percent from a year before.

Benchmark 10-year note yields rose to 3.93 percent in New York, from 3.82 percent late Tuesday. The Standard & Poor's 500 stock index advanced 2.5 percent to close at 1,245.36, after earnings from Wells Fargo amp; Co. topped analysts' estimates. Consumer prices were forecast to rise 0.7 percent, according to the median estimate of 79 economists in a Bloomberg News survey. Projections ranged from gains of 0.2 to 1.1 percent. Costs excluding food and energy were forecast to rise 0.2 percent, the survey showed. Bernanke told lawmakers in semiannual testimony on the economy Tuesday and yesterday that inflation risks have "intensified." At the same time, he dropped his June assessment that risks to the economic expansion had diminished, indicating central bank policy makers aren't ready to raise interest rates to contain expenses. "We don't think they're going to raise rates now - until June next year now is our forecast - until basically the economy starts to get some footing," Beth Ann Bovino, senior economist at Standard Poor's in New York, said. "Right now the beast is what's going to happen with the economy."