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Published: Thursday, 6/18/2009

Consumer index seen as sign inflation in check

ASSOCIATED PRESS

WASHINGTON - Consumer prices rose less than expected in May and posted the steepest annual drop in 59 years, according to government figures released yesterday, fresh evidence that the recession is keeping inflation in check.

Low prices will make it easier for the Federal Reserve at its meeting next week to keep a key short-term interest rate near zero, where it has been since December. Most economists consider a rate increase unlikely until next year.

Still, as higher government spending pushes this year's deficit toward a record of nearly $1.85 trillion, economists warn that inflation could be a threat in two to three years.

"Inflation may be coming, but it's not here yet and likely won't be for some time," Richard Moody, chief economist at Forward Capital, wrote in a note to clients.

The U.S. Labor Department reported that the consumer price index rose a seasonally adjusted 0.1 percent last month, below analysts' expectations of a 0.3 percent rise. Excluding volatile food and energy costs, core prices also increased 0.1 percent, matching expectations.

The recession is holding down prices as the unemployment rate has reached a 25-year high and factories are operating at record-low levels. Workers concerned about their jobs are less likely to push for higher pay, while low consumer demand has made it difficult for companies to raise prices.

Food prices fell for the fourth straight month, the department said, as costs fell for all six of the major grocery food groups, including fruits and vegetables, meats and poultry, and dairy products.

The Producer Price Index, which measures price pressures before they reach consumers, rose a seasonally adjusted 0.2 percent from April. That was below analysts' expectations of a 0.6 percent rise.



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