Consumer prices were flat last month as energy costs fell briefly, helping boost people's purchasing power and retail spending, the government reported yesterday.
But with gasoline prices surging in recent weeks, many economists are forecasting a pickup in inflation this month.
The government's consumer price index, one of the most widely followed measures of inflation, was unchanged in June after slipping by 0.1 percent in May, the Labor Department said.
With no inflation to offset pay gains, real average weekly earnings for most U.S. workers rose 0.2 percent last month from their level in May, the department said in another report. They were up 0.4 percent in the 12 months that ended in June, the first yearly gain since September.
Deep discounting by automakers, clothing stores and other retailers helped lure consumers to spend that extra cash. Retail sales climbed 1.7 percent last month after falling 0.3 percent in May, according to the Commerce Department.
Together, the reports "reveal an economy expanding strongly, but with no sign that growth is generating upward price pressures," Paul Ashworth, senior international economist at Capital Economics Ltd., wrote in an analysis.
Federal Reserve officials agree that the economic expansion is on a firm footing and inflation is under control. But they remain concerned about the potential for inflation and plan to keep gradually raising short-term interest rates to keep price pressures in check.
Stock prices rose after the economic reports were released, in part because the tame inflation numbers probably mean that the Fed feels no pressure to raise rates more aggressively.
Because energy costs can swing so much over time, Fed officials and other economists seek a sense of underlying inflation by also looking at measures that exclude prices of food and energy items. Such so-called core inflation was up just 0.1 percent last month, the same as in May. The core CPI is up just 2 percent over the past 12 months -- a comfortable level for many at the Fed.
Meanwhile, the flat overall CPI, which is adjusted for seasonal variations, reflected the net result after lower prices for energy, clothing, recreation and other items offset higher prices for medical care, housing, food, education and communication, the Labor Department said.
Energy prices increased sharply in February, March and April, then fell 2 percent in May and declined 0.5 percent in June. Energy costs have been rising again in recent weeks as benchmark crude oil prices have climbed to around $60 a barrel.
The average price of regular gasoline has moved up from about $2.12 a gallon at the beginning of June to $2.33 this week, the Energy Department reported Tuesday. Retail gas prices for April through September are now projected to average $2.25 a gallon, about 35 cents a gallon above the price in the comparable period last year.
Inflation "will likely rebound in July, thanks to the recent run-up in energy prices," Mark P. Vitner, senior economist at Wachovia Economics Group, wrote in an analysis.
Energy prices have risen at a 14.1 percent annual rate in the first half of this year, accounting for more than a third of the increase in the CPI during that time, after rising 16.6 percent in 2004.
Until recently, many businesses have been forced by competition to absorb higher energy costs without passing them on to consumers through higher prices. But Fed officials have recently noticed that the strong economy is emboldening businesses. Airlines, for example, raised fares 2.3 percent in June, for a fifth consecutive monthly increase.
Labor costs also are starting to rise as the job market improves. Low interest rates continue to spur economic growth, and the Fed is studying whether the booming housing market is fueling inflation pressures.
Fed officials raised their benchmark short-term interest rate to 3.25 percent from 3 percent late last month and indicated that they are likely to keep raising it.
Anthony M. Santomero, president of the Federal Reserve Bank of Philadelphia, said in a speech this week that he expects inflation to remain "well contained" this year. However, he said, the combination of firming labor markets and business's stronger pricing power "makes me a bit more concerned about inflation pressures than I would have been a year or so ago."