Inflation at the wholesale level slowed in May after two big months of increases, even though gasoline prices and inflation pressures outside of energy and food continued to climb.
The Labor Department reported Tuesday that its Producer Price Index, which measures inflation pressures before they reach the consumer, was up just 0.2 percent last month, even better than the 0.4 percent rise that many economists had been expecting. The improvement reflected the fact that energy prices rose by just 0.4 percent after a 4 percent jump in April, and food prices actually fell by 0.5 percent.
However, the core rate of inflation, which excludes food and energy, was up 0.3 percent in May, compared with more modest gains of 0.1 percent in both March and April. That was slightly higher than the 0.2 percent increase analysts had been expecting.
In other economic news, retail sales edged up just 0.1 percent in May, reflecting weak auto sales. Excluding autos, retail sales were up 0.5 percent, but much of that strength came from a jump in gasoline prices.
Inventories held by businesses on shelves and back lots rose by 0.4 percent in April following an even bigger 0.7 percent rise in March. Inventory increases during a period when the economy is slowing could be a warning sign that factory production will be reduced in future months to get inventories more in line with sales.
Analysts said the weakness in retail sales in May was consistent with their view that the economy is slowing from a sizzling 5.3 percent rate of growth in the first three months of the year to around 3 percent in the current April-June quarter.
“There has been some slowdown in consumer spending, but given how retail prices have risen, it has not been significant,” said Joel Naroff, chief economist at Naroff Economic Advisors, a private consulting firm.
Naroff noted that while the government reported just a tiny 0.1 percent increase in May retail sales, it revised April sales up to a stronger 0.8 percent from an initial 0.5 percent estimate made a month ago.
The small 0.2 percent increase in overall inflation was the best performance since a 1.3 percent drop in February.
Wholesale prices had surged by 0.5 percent in March and an even worse 0.9 percent in April, the biggest increase in seven months, reflecting a huge jump in energy costs.
The 0.3 percent rise in core inflation, excluding food and energy, was the biggest rise since a 0.4 percent increase in February. Wall Street has been plunging over the past five weeks as investors have grown increasingly worried that rising inflation pressures will prompt the Federal Reserve to continue pushing interest rates higher.
Federal Reserve Chairman Ben Bernanke contributed to a 199-point drop in the Dow Jones industrial average on June 5 when he called recent increases in inflation “unwelcome” developments. Many economists believe the Fed will raise rates for a 17th time when they meet on June 28-29.
Gasoline prices were up 2.2 percent in May after having soared by 12.3 percent in April with motorists in many parts of the country facing pump prices that are above $3 per gallon.
The rising pain at the pump combined with a plunging stock market have caused consumer confidence to decline and raised worries about the ability of Americans to keep shopping.
Since consumer spending accounts for two-thirds of total economic activity, many analysts believe there will be a sharp slowdown in overall economic growth in coming months.
Sales of autos fell by 1.6 percent in May after having risen by 0.8 percent in April. Outside of autos, sales at gasoline stations increased by 1.9 percent last month after rising 5.5 percent in April. However, those huge gains primarily reflected the big jump in gasoline prices during those two months, increases that left consumers with less money to spend on other items.
Excluding the rise at gasoline stations, sales at other retailers actually fell by 0.1 percent last month.
Over the past 12 months, inflation at the wholesale level has risen by 5.6 percent. Excluding food and energy, the increase has been a more modest 1.5 percent increase. However, there are worries that the relentless rise in energy prices is beginning to spill over into inflation pressures outside of energy.
The 0.5 percent drop in food prices reflected big declines in the price of eggs and vegetables which helped offset a 2.3 percent increase in beef prices.
The cost of passenger cars fell by 0.4 percent in May but the price of pharmaceutical products rose by 1.9 percent, the biggest gain since July of last year.