Prices paid by US consumers were unchanged last month, according to official figures.

These are very good numbers

Peter Cardillo, Global Partners Securities

The Labor Department's consumer price index held steady in May, despite a 0.5% increase in prices the previous month.

The lack of price pressures in the US economy means the US Federal Reserve will be able to delay increases in interest rates.

The annual inflation rate dropped to 1.2%, down from 1.6% in April.

Good news for the Fed

The biggest influence on the inflation figure was the drop in energy prices.

They fell 0.7% in May, mainly reflecting a drop in gasoline prices, after leaping 4.5% the previous month.

Stripping out energy and food prices, and so-called core-CPI climbed 0.2% last month.

"This says that the Fed still has room to hold policy steady for a while," said Gary Thayer, chief economist at AG Edwards & Sons.

"Inflation is not a threat at this point."

In other data released on Tuesday, housing construction jumped by 11.6% in May, the biggest increase since July 1996 and far bigger than expectations.

The housing market has remained strong, despite the dip in the US economy, thanks to low mortgage rates.

"These are very good numbers," said Peter Cardillo, chief strategist at Global Partners Securities.

"Inflation is tame and not a problem, and the housing market is very strong."