Inflation slows in May as energy prices fall

Associated Press

WASHINGTON

Falling energy prices cooled overall inflation in May, offering some relief to consumers who have been coping for months with high gas prices.

Overall consumer prices rose 0.2 percent, the smallest increase in six months, the Labor Department said. It was the first drop in energy costs in nearly a year.

Still, Americans paid more for cars, clothing and hotel rooms in May. That drove the so-called “core” consumer prices, which exclude volatile food and energy, up by the most in nearly three years.

The increase in core inflation, which was higher than analysts expected, contributed to another bleak day on Wall Street. The Dow Jones industrial average tumbled more than 180 points in afternoon trading, reflecting fears that the worsening debt crisis in Greece could spread.

Higher core prices will limit the ability of the Federal Reserve to take any additional steps to stimulate the economy. The Fed is wrapping up a $600 billion Treasury bond-buying program this month that was intended to lower interest rates, boost stock prices, and encourage more spending.

Critics have charged that the bond purchases could stoke inflation by increasing the amount of money in circulation. Rising core inflation will strengthen the hands of those Fed officials opposed to any further purchases.