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. Last Updated: 07/27/2016

U.S. Consumer Prices Level Out

WASHINGTON -- Despite the sharpest jump in the cost of U.S. consumers pay for food in 19 months, overall consumer prices increased only 0.1 percent last month, the Labor Department reported Wednesday, reducing the threat of inflation and probably lessening the likelihood that the Federal Reserve will raise interest rates again this month.

Economists were cheered by the report even though the figures were gathered before gasoline prices exploded this month.

"Taken all around, the report is quite reassuring," said Barry Bosworth, an economist at the Brookings Institution think tank in Washington. "We still don't have in any sense a consistent story of worsening inflation in the United States. Basically the odds of what could be called a soft landing have increased."

The current surge in gasoline prices has reversed a slide of 3.5 percent in May, when declining prices for fuel, tobacco products and clothing offset rises in airline fares and food.

Food prices rose 0.5 percent last month, the biggest boost since October, 1998. Rising prices for vegetables, beef and poultry overshadowed falling prices for fruits and dairy products.

The report also found that new car prices rose 0.2 percent last month and clothing prices fell 0.2 percent.

Analysts said the relatively steady prices are further evidence that the Federal Reserve's six interest rate hikes over the past year have begun to take effect.

In a separate report Wednesday, the Federal Reserve said the economy posted solid growth in April and May. though with "signs of some slowing from the rapid pace earlier in the year."

Economists said the reports made it likely that Federal Reserve policy makers will leave interest rates unchanged when they meet June 27-28.

"The Fed should declare victory, sit back and do nothing," said Gordon Richards, an economist for the National Association of Manufacturers. "The threat of inflation has receded, and there is no longer any danger of the economy overheating."

The Federal Reserve detected some indications that inflation is not totally under control in its survey of economic activity known as the beige book. The report contains information collected by the 12 regional banks in the Federal Reserve system.

"All but Minneapolis [regional Fed bank] said scattered signs of cooling are in evidence or the pace of growth is slowing," the report said. "Indications of worsening price inflation, while not widespread, are reported by several districts."

The Fed also said employers are continuing to report shortages of workers and difficulty in hiring and recruiting employees. But it said the tightness in the labor market has not intensified.

The 0.1 percent increase in the consumer price index, the most closely watched of the government's barometers of inflation, followed an April that showed no change. The "core" inflation rate, which excludes volatile food and energy prices, was up 0.2 percent last month.