Wholesale Prices Up Modest 0.3% in May; Energy Costs Fall 1%

Wholesale prices rose a moderate 0.3% in May as a fourth consecutive drop in energy prices helped offset a rise in food costs, the government said today.

Energy costs fell 1% last month while food costs increased 0.6%, according to the Labor Department’s producer price index for finished goods, one stop short of retail.

Today’s report was roughly in line with economists’ projections.

It was the fourth straight moderate report since a severe cold snap sent prices spiraling 1.9% in January, a 15-year record.

For the first five months of the year, inflation at the wholesale level was running at a 4% annual rate, down from 4.8% for all of 1989, the government said.

Private analysts viewed the report as good news on the inflation front, especially after the huge price increases caused by last winter’s freeze.

“We’re back on trend after the wiggles of December and January,” said Donald Ratajczak, director of economic forecasting at Georgia State University.

Today’s moderate inflation data may strengthen arguments that the Federal Reserve no longer needs to keep such a tight grip on interest rates to hold down inflation, analysts said.

“What we’re seeing is a reversal in an earlier inflationary trend, which may indicate that the time has come for the Fed to ease up on credit by reducing interest rates,” said Ron Schreibman of the National Assn. of Wholesaler-Distributors.

He noted that over the last 12 months, wholesale prices have risen a modest 3.1%.

“This report shows that we are neither veering into recession nor are we in a situation where inflation is accelerating rapidly,” Schreibman said.

In May, energy prices dropped 1% after having fallen by even larger amounts the previous three months. Gasoline prices were down 2.1% and fuel oil fell 6.2%. Natural gas increased 0.9%.

Food overall was up 0.6% after having declined by that amount the previous two months.

The price of fruits dropped 8.4%, vegetables fell 3.9% and eggs were down 21.8%.

But that wasn’t enough to offset increases in the costs of other foods, such as the 7.7% hike in the cost of pasta, 4.9% increase in pork and 8.8% rise in the cost of fish.

Excluding the volatile food and energy sectors, prices rose a mild 0.2%, the same as the month before. Economists often consider this “core” number a better indicator of underlying inflationary pressures in the economy.