A brief resurgence in energy costs boosted consumer prices 0.5 percent in June, the steepest rise in seven months.
Even with the increase, the consumer price index has declined at an annual rate of 0.2 percent since January. During the past 12 months, consumer prices have risen 1.7 percent, compared with 3.8 percent for all of last year.
Economists said they don't expect prices to continue increasing as sharply as they did last month, partly because energy prices have slid downward again since June. However, economists noted that the costs of numerous services, such as medical care and transportation, rose sharply in June and in recent months.
In a separate report, the government said that Americans' personal income edged up only 0.1 percent in June. Income growth was restrained in part by strikes and other factors. Excluding those effects, personal income rose a more moderate 0.4 percent last month, the Commerce Department reported.
Income after taxes was unchanged after declining 0.4 percent in May.
Personal income is important because rising salaries, wages and other incomes mean consumers have more money to spend, and provide a boost to the economy. Slower income growth suggests that spending, and thus economic growth, will slow.
Consumption increased 0.6 percent in June, following a 0.7 percent rise the previous month. However, recent slow gains in income suggest that the consumer buying binge may burn out.
"The consumer's running out of purchasing power," said Edward Yardeni, economist for Prudential Bache. "Purchasing power is generated mostly by job gains. Over the last couple of months, job gains have dwindled."
Economic growth "is going to continue to muddle along between the extremes of a boom and a recession," Yardeni said.
Meanwhile, Commerce also said that orders for durable manufactured goods rose 2.1 percent in June, following four months of declines, the first sign that production may pick up in the next few months. Production has been about flat for more than a year, largely because of the influx of imports that have provided many of the goods businesses and consumers buy.
The increase in inflation was seen by economists as a short-term blip. They noted oil prices, after rising to about $17 a barrel from $10 in June, have reversed and are going back down, indicating lower inflation in the months ahead.
Economists had been hoping that the decline in oil prices and the cost of living for consumers would lead to a resurgence in economic growth.
However, the government reported Tuesday that gross national product -- the nation's output of goods and services -- rose only at a 1.1 percent rate in the second quarter. Many economists said they now do not expect a major rebound for the second half of the year.
"The energy bulge will be reversed in coming months," said David Jones, economist for Aubrey G. Lanston. However, Jones said that medical care, transportation and costs of other services have increased substantially.
"We still do have a significant amount of underlying inflation in that side," meaning services, Jones said. "By no means are we starting an immediate or significant increase in the rate of inflation. The services side is still showing that we have an underlying rate of inflation of as much as 0.6 percent."
Higher energy prices in June were responsible for about half of the June increase in consumer prices, Labor said. Excluding energy, the index rose 0.2 percent.
Gasoline, electricity and natural gas prices rose substantially, although fuel oil prices continued to decline. In the first half of the year, however, the energy index fell at an annual rate of 40.2 percent.
Gasoline prices increased 3 percent in June, but still have declined 22.3 percent in the first six months of the year. They are 31.2 percent below their peak level of March 1981.
Costs of new cars rose 0.6 percent as prices of both domestic and imported cars rose. This index rose at an 8.4 percent annual rate in the past three months, the largest quarterly rise in five years, Labor said.
Automobile insurance costs rose 1.3 percent in June, contributing to the 14 percent rise in the past 12 months. Used car prices fell 0.4 percent last month, 4.7 percent lower than a year earlier.
Local telephone charges rose 4.6 percent, while long-distance calls declined.