updated 7/18/2007 6:26:20 PM ET 2007-07-18T22:26:20

Food costs went up again but consumers finally got a break at the gas pumps in June, helping to lower inflation to the smallest increase in five months.

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The Labor Department reported Wednesday that consumer prices edged up by 0.2 percent in June. That was the best showing since January and far below the 0.7 percent surge of May, the biggest jump in nearly two years.

The price moderation reflected a 1.1 percent decline in gasoline prices, which pushed total energy costs down by 0.5 percent, offsetting a 0.5 percent rise in food costs.

In other economic news, construction of new homes rose in June following two straight months of declines, the Commerce Department reported.

The 2.3 percent increase in construction activity was better than the small decline that analysts had expected. It pushed home building to a seasonally adjusted annual rate of 1.434 million units.

Core inflation, which excludes the volatile energy and food sectors, was also moderate in June, rising by just 0.2 percent. Through the first six months of this year, core inflation has been rising at an annual rate of 2.3 percent, down from a 2.6 percent rate of increase in the last half of 2006, indicating that the surge in energy and food costs are not becoming embedded in more widespread inflation problems.

That will be welcome news at the Federal Reserve which is hoping that an economic slowdown will promote declining cost pressures in coming months.

Fed Chairman Ben Bernanke was scheduled to deliver the central bank’s midyear economic forecast to Congress on Wednesday. Financial markets expect he will continue to signal that interest rates, which have not been changed for more than a year, will remain steady for perhaps the rest of this year.

The moderation in consumer inflation was welcome news for nonsupervisory workers, who saw their inflation-adjusted weekly wages rise by 0.5 percent in June, the best showing in eight months. Wages, after adjusting for inflation, had fallen in four of the previous five months this year, reflecting the surge in energy prices.

Gasoline prices, which hit a record of $3.23 in late May fell steadily in June. The government reported that pump prices were down 1.1 percent in June, the first drop since a 3 percent fall in January.

Food costs, however, rose by 0.5 percent, reflecting higher costs for poultry, beef, pork and dairy products. The price for fruits and vegetables were down.

Overall prices were rising at an annual rate of 5 percent in the first six months of this year, double the 2.5 percent rate of increase in the last half of 2006 with most of that acceleration coming from the jump in energy and food costs.

Outside of food and energy, prices have remained moderate. For June, clothing prices fell by 0.6 percent while new car prices were flat. Airline ticket prices, however, jumped by 0.9 percent.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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