Consumer prices were unchanged in June for the second month in a row, the best two-month string in 13 years, the Labor Department said Thursday.
The core rate of inflation, which excludes food and energy prices, rose 0.1 percent for the fifth time in the past six months.
The Consumer Price Index has risen 2 percent over the past 12 months and is rising at a 2.2 percent pace so far in 1999 after rising 1.6 percent in 1998. The core rate is up 2.1 percent over the past year and is rising at a 1.6 percent pace so far in 1999.
A panel of economists surveyed by CBS.MarketWatch.com expected the CPI to rise 0.1 percent and the core to gain 0.2 percent.
Meanwhile, the Commerce Department said inventories rose 0.3 percent in May, as expected. First-time jobless claims rose 11,000 to 310,000, the Labor Department said.
The flat CPI, together with the drop in the June Producer Price Index, shows that inflation is still not a problem in the U.S. economy. However, rising gasoline prices are expected to once again show up in the July CPI, which will be released just before the next meeting of the Federal Open Market Committee, the Federal Reserve's policymaking arm.
It was high energy prices in April's CPI that first put the financial markets on Fed watch.
The Fed raised short-term interest rates at the end of June as a precaution against rising inflation and announced it was undecided about any future rate hikes. June's tame inflation readings reduce the chances of an increase at the Aug. 24 meeting of the Federal Open Market Committee.
"It's very favorable as far as Fed policy goes," said economist Asha Bangalore of Northern Trust. "However, the situation in July is going to be less favorable."
"Odds of a rate hike in August have diminished somewhat, but the door is still open," she said.
In June, food prices were unchanged and energy prices dropped 1.2 percent as gasoline prices fell 3.2 percent, the biggest drop in two years.
The only sector showing higher prices was medical care, which rose 0.4 percent. Prescription drug prices gained 0.5 percent, bringing the year-to-date increase to 6.1 percent. Physician services and hospital services rose 0.4 percent.
Apparel prices continued to fall, dropping 0.4 percent. Apparel prices have dropped 1.2 percent in the past year.
Transportation prices fell 0.6 percent on falling gasoline and air fare prices. Air fares had risen 12.5 percent in the first four months of the year, but fell 4.8 percent in June, the biggest drop since December 1995. Vehicle prices rose 0.1 percent.
Housing prices rose 0.2 percent, reflecting a 0.6 percent gain in hotel and motel prices. Electricity prices fell on a seasonally adjusted basis while natural gas and fuel oil prices rose.
Recreation prices were unchanged, as were education and communication prices. Tobacco prices, which have climbed 8 percent so far this year, rose 0.2 percent in June.
Commoditieswhich represent 42 percent of the CPI market basket, fell 0.2 percent in June and are up 1.5 percent in the past year. Services, which are more vulnerable to labor market pressures, rose 0.1 percent and are up 2.4 percent in the past year. Services excluding energy rose 0.1 percent in June and are up 2.6 percent in the past year.
Written by Rex Nutting, CBS MarketWatch