* U.S. consumer prices rise 0.1 percent in May
* Core prices up 1.7 percent in 12 months to May
* Possible end to declines in core could comfort Fed
By Jason Lange
WASHINGTON, June 18 U.S. inflation showed signs
of stabilizing in May after a long decline, a potential comfort
to Federal Reserve policymakers who want to avoid any chance of
a debilitating bout of deflation.
The Labor Department said on Tuesday the consumer price
index edged 0.1 percent higher last month after two straight
months of declines, while the so-called core index, which
excludes food and energy costs, rose 0.2 percent, just above the
pace clocked in April.
The core index, which the U.S. central bank monitors closely
because it is less volatile and provides a better sense of price
trends, was up 1.7 percent in the 12 months through May.
The increase matched the gain in April and suggested that a
worrisome downward trend in core inflation, which began a year
ago, might be coming to an end as consumer demand strengthens.
That would be a relief to Fed officials who worry that a big
drop in inflation could lead to a spiral of falling prices and
wages. Removing this risk could make the Fed more comfortable
with eventually paring back its bond-buying stimulus.
"Inflation pressures remain very subdued, but downside
momentum is fading," said Eric Green, an interest rate
strategist at TD Securities in New York.
The central bank began a two-day meeting on Tuesday and is
expected to leave a bond-buying stimulus program unchanged.
While May's reading for 12-month core inflation remains
below the Fed's 2 percent inflation target, a stabilization
could make the Fed more comfortable paring back its economic
stimulus programs as soon as this fall.
The overall CPI was up 1.4 percent from a year-ago in May,
up three-tenths of a percentage point from the prior month.
"The economy has been performing decently," said Carl
Riccadonna, an economist at Deutsche Bank in New York. "I don't
think the Fed is concerned" with weak inflation data.
In May, the core price index rose with support from a 0.2
percent increase in clothing prices and a strong 0.3 percent
increase in shelter costs.
Yields rose a bit on U.S. government debt and U.S. stock
prices were higher at midday.
The Fed is widely seen to be moving closer to cutting back
on its extraordinary support for the U.S. economy, which has
shown signs of resilience despite tax hikes and government
spending cuts this year. It has been buying $85 billion in bonds
each month to lower borrowing costs and spur hiring.
A separate report showed U.S. housing starts rose less than
expected in May, likely reflecting labor and material
constraints. Still, the overall trend remained consistent with a
housing market recovery that will help counter the drag on the
economy from government austerity.
Housing starts rose 6.8 percent to a seasonally adjusted
annual rate of 914,000 units. April's starts were revised up to
show a 856,000-unit pace instead of the previously reported
"What we see is a housing market that will continue to
improve this year into 2014," said Gus Faucher, a senior
macroeconomist at PNC Financial Services in Pittsburgh.