US wholesale prices rise 0.5 pct in May

[June 15, 2013]  WASHINGTON (AP) -- A rise in food and gas costs drove a measure of wholesale prices up sharply in May. But outside those volatile categories, inflation was mild.

The Labor Department said Friday that the producer price index rose 0.5 percent in May from April. Gas prices rose 1.5 percent last month, and food costs increased 0.6 percent.

The increase last month followed a 0.7 percent decline in April and a 0.6 percent drop in March, both of which were driven by steep declines in gas prices.

Core prices, which exclude the food and energy, rose just 0.1 percent in May. That matches the April increase.

The index measures price changes before they reach the consumer.

"There really is not much inflationary pressure in the economy," Paul Dales, an economist at Capital Economics, said in a note to clients.

Aside from sharp swings in gas prices, consumer and wholesale inflation has increased very slowly in the past year. Both the overall and core indexes have risen just 1.7 percent in the 12 months ending in May. That's below the Federal Reserve's 2 percent inflation target, allowing the Fed more latitude to pursue its aggressive policies to spur greater economic growth.

The combination of modest economic growth and high unemployment has kept wages from rising quickly. That's made it harder for retailers and other firms to raise prices.

Most of the May increase in food costs stemmed from a 41.6 percent jump in the cost of eggs, the biggest on record. The jump reflected soaring demand in the U.S. and overseas. The Memorial Day and Mother's Day holidays, popular occasions for brunch, spurred more demand in the U.S., a department spokesman said. And Mexico imported more U.S. eggs in response to a bird flu epidemic.

Nearly two-thirds of the 0.1 percent increase in core prices occurred because of a 0.4 percent rise in the wholesale cost of pickup trucks. The housing recovery has created more business for landscapers and contractors, who have bought more trucks.

The Fed has said it plans to keep the short-term interest rate it controls at a record low near zero until the unemployment rate falls below 6.5 percent, provided inflation remains under control. The unemployment rate ticked up in May to 7.6 percent.

The Fed is also purchasing $85 billion a month in bonds to keep longer-term interest rates down. That's intended to encourage more borrowing and spending, which drives economic growth. The Fed says it will continue to buy bonds until the job market improves substantially.

Employers are adding jobs at a steady pace and consumers are spending more, despite an increase in Social Security taxes at the beginning of the year. That's fueled intense speculation that the Fed may soon start reducing the pace of its monthly bond purchases.

Many economists expect they will do so by the end of the year, particularly if hiring stays healthy. But tame inflation means they face less pressure to taper their purchases. If prices were rising more quickly, the Fed could be forced to end its bond-buying program and raise interest rates.

The Fed's next policymaking meeting will take place next week, June 18-19.

[Associated Press; By CHRISTOPHER S. RUGABER]

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