US consumer prices increased 0.7% in May as petrol costs spiked dramatically, but the 'core' inflation rate was much tamer, official figures showed.
The Labor Department's consumer price index (CPI) was slightly stronger than the 0.6% rise widely expected by most Wall Street analysts. The jump in consumer prices was the strongest since September 2005.
The government report revealed, however, that the core rate of inflation excluding food and energy costs, was slightly lower than forecasts as it posted a mild 0.1% gain. The core rate's gain was the weakest since March.
Most economists view the core rate as a better indicator of inflation trends, and the core rate's May reading is likely to give some comfort to the Federal Reserve which has cited inflationary pressures as one of its key concerns.
A separate report from the US Central Bank showed that US industrial production was surprisingly flat in May as utilities and car production decreased, while capacity utilization was a slacker-than-expected 81.3%.
Analysts were expecting industrial production to rise 0.2% and the nation's factories, mines and utilities to use capacity at an 81.6% rate.
The Federal Reserve report showed that manufacturing output rose by 0.1% in the month, while mining production gained 0.5%.
Utilities output fell by 1.3% because of unusually cold temperatures in the month, the Fed said.
And other figures out today showed that the US current account deficit widened in the first quarter to $192.6 billion, from a significantly downwardly revised estimate of $187.9 billion in the fourth quarter of 2006, official figures showed today.
The US Commerce Department previously pegged the fourth-quarter current account deficit at $195.8 billion.
The department also significantly lowered its estimate of the 2006 current account gap to $811.5 billion, from $856.7 billion previously reported.
It also lowered its estimate of the current account deficit for other years dating back to 2001, while raising estimates for the years 1997 through 2000.
The current account is the broadest measure of the US trade balance. In addition to trade in goods and services, it includes income received from US investments abroad less payments to foreigners on their investments in the United States.
According to Peter Morici, a professor at the University of Maryland School of Business, the huge deficit on trade in goods is caused by an overvalued dollar against the Chinese yuan, a dysfunctional national energy policy that increases US dependence on foreign oil, and the competitive woes of the three domestic carmakers.
'Together, the trade deficit with China and on petroleum (petrol) and automative (car) products account for about 95% of the deficit on trade in goods and services', he said.
He warned that longer-term, persistent U.S. trade deficits are a substantial drag on growth.
'US import-competing and export industries spend three-times the national average on industrial R&D, and encourage more investments in skills and education than other sectors of the economy.
By shifting employment away from trade-competing industries, the trade deficit reduces U.S. investments in new methods and products, and skilled labor', he said.
