Consumer prices ballooned on the back of soaring energy costs in May, the Commerce Department reported Friday, putting the nation's economy at the brink of a dreaded, 1970s-style period of "stagflation." The rise met expectations on Wall Street.

The Consumer Price Index advanced 0.6% on a seasonally adjusted basis in May from the previous month, putting the CPI up 4% in 2008, nearly matching it advance for all of 2007 in the first five months of 2008. With economists expecting that the economy is barely growing if growing at all, the price increases make it increasingly likely that the Federal Reserve will be forced to raise its benchmark interest rate.

Energy costs soared in May, up 4.4%, with the index for petroleum-based energy up 5.8% and the index for energy services up 2.3%. Transportation was up 2%.

Energy costs rose at an astounding 28.2% compound annual rate during the three months ending in May. The index for gasoline rose 5.7%, 20.8% higher than May 2007. Prior to seasonal adjustment, gasoline prices in May rose 9.5% above their previous peak level recorded in April.

The food index rose 0.3% in May, with the index for food at home, which advanced 1.5 percent in April, also up 0.3%. The CPI for all items minus food an energy advanced a more modest 0.2% and was advancing at a 1.8% annual rate for the three months ended with May. This is expected to accelerate further as producers continue to increase prices to cover soaring energy costs.

The index for housing rose 0.5% in May, with shelter up 0.2%. Within the shelter category, the indexes for rent and owners' equivalent rent increased 0.2% and 0.1%, respectively.

In recent days, Fed chairman Ben Bernanke has said the Fed is keeping a close eye on inflation and that the economic downturn does not appear to be as deep as some estimates indicate. On Thursday, he said the Fed must remain a "dynamic institution," which was taken by Fed watchers as a signal that its rate-cutting campaign is over and that rates are like to remain stable near-term and begin rising later in the year.

Inflation fears, meantime, appear to have spread worldwide, which is likely to put upward pressure on mortgage rates as the year progresses.