Inflation tame in June

NEW YORK (CNNMoney.com) -- Prices paid by consumers rose in June, but when food and energy prices were stripped out the government's key inflation measure was in line with Wall Street expectations.

Overall, prices at the retail level rose 0.2 percent in the month, compared to a 0.7 percent gain in May, according to the Labor Department's Consumer Price Index. Economists surveyed by Briefing.com had forecast a 0.1 percent rise in June.

An increase of 0.5 percent in food prices contributed to the rise in total prices. Meanwhile, energy prices fell 0.5 percent last month.

"[The cost of] food is becoming more of a problem in part because of ethanol and heavy transportation costs," said David Wyss, chief economist for Standard & Poor's, referring to the rising use of corn-based ethanol, which has driven up the price of corn and impacted the prices of other corn-based products from cattle feed to soft drinks.

The most closely watched part of this report, the so-called core CPI, which strips out volatile food and energy prices, rose 0.2 percent in June, compared to the 0.1 percent increase in May. Economists had forecast another 0.2 percent gain.

"It's really a milquetoast report," said Rich Yamarone, director of economic research at Argus Research.

Inflation is "slightly elevated but not all that troubling," he said. "We're not anywhere near something that would cause the Fed to raise rates with this latest reading."

Wyss agreed that the report leaves the Fed in position to leave rates unchanged for a while.

The increase left the core CPI up 2.2 percent over the last 12 months, which is generally believed to be close to the Federal Reserve's comfort zone. The overall CPI rose 2.7 percent year over year.

Treasury prices rose on the report, lowering the yield on the 10-year note to 5.03 percent after the report from 5.07 percent just before the report.