WASHINGTON -- Prospects for economic recovery taking hold this summer while inflation stays cool gained ground Friday after government reports showing industrial output increased in May while consumer prices rose only modestly.

Production at U.S. mines, factories, and utilities advanced 0.5%, the second monthly gain in a row after a revised increase of 0.3% in April, the Federal Reserve Board reported. The May increase was the biggest monthly rise since June.

In a separate report, the Labor Department said the consumer price index last month increased a modest 0.3% as energy prices registered their first advance in six months. Excluding food and energy, prices rose only 0.2%, unchanged from April.

Analysts said the reports, coming on top of others showing increases in home sales, consumer spending, and employment, added to expectations of recovery. "We've moved from playing hunches on the timing of the recovery to having hard economic data now," said Ron Shriebmann, vice president for the National Association of Wholesaler-Distributors.

"As we move out of the recession and start the recovery, inflationary pressures are going to remain very moderate," said James Barkocy, deputy manager for Brown Brothers Harriman & Co. Mr. Barkocy said his firm is forecasting that consumer prices will rise by little more than 3% in the second half of the year while the recovery takes hold.

The consumer price figures were especially encouraging because they came a day after the Labor Department reported that the producer price index jumped 0.6% in May. Federal Reserve officials attach greater importance to the consumer price series, which reflects prices of both goods and services.

Gasoline prices, which generally increase in May with the beginning of the driving season, jumped 2.6% after a small rise in April and decreases in the preceding four months. Entertainment, medical, and clothing prices also increased. But housing costs, which were rising sharply earlier in the year, advanced only 0.2% for the second consecutive month, and food prices were unchanged.

Over all, consumer prices for the first five months of the year were up at an annual rate of only 2.7%, officials said. By contrast, prices soared 6.1% in 1990 to mark the worst performance in nine years.

Economists say that normally price pressures remain under control during the early stages of recovery because labor markets are slack and plans have plenty of capacity. According to the Fed's latest report, U.S. industry stepped up its operating rate to 78.7% of capacity in May -- the second monthly gain in a row but comfortably below the 83.4% posted a year earlier.

"For the foreseeable future, maybe the next month or two, we're going to be in a very predictable environment of growth with good inflation numbers," said Thomas Carpenter, chief economist for ASB Capital Management Inc. "We can be fairly certain Fed policy remains where it is, and there should be less anxiety for bond traders and money market managers."

Mr. Carpenter is more bullish than many analysts about prospects for growth. With further increases in industrial production and retail sales in the second quarter, it is possible the stage is being set for growth of 4% to 5% in the second half of the year, he said.

Still, some analysts are not convinced that a solid recovery is underway. The unemployment rate is likely to rise further this summer, and state and local government cutbacks have yet to be felt, said Philip Braverman, senior vice president for DKB Securities Corp. "The perception that a recovery has begun is likely to soon wane," he told clients in a market letter.

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