By Jeffry Bartash, MarketWatch
WASHINGTON (MarketWatch) — U.S. wholesale prices rose in May at the slowest pace in 10 months as the cost of food fell and the increase in energy prices tapered off, the government reported Tuesday.
The producer price index rose 0.2% last month, the Labor Department said. It was the smallest gain since July 2010.
Food costs dropped 1.4%, owing mainly to lower vegetable prices, to mark the biggest one-month decline in almost a year. The price of food has fallen twice in the past three months, although food costs are still 3.9% higher compared to one year ago.
Energy prices, meanwhile, rose 1.5% in May, the slowest rate since September. A surge in fuel costs have push wholesale prices sharply higher since last fall, but oil prices have pulled back over the past month. Many economists expect the modest decline in oil prices to ease pressure on wholesale costs.
Still, wholesale energy prices have shot up almost 25% over the past year, so it may be awhile before companies and their customers experience much relief. Wholesale costs have risen an unadjusted 7.3%% in the past year, the largest 12-month increase since September 2008.
For the most part companies have absorbed higher wholesale prices, but consumers are paying more for fuel and many other goods such as food whose prices are sensitive to higher energy costs. Consumer prices climbed 3.2% from April 2010 to April 2011, the biggest 12-month increase in more than two years.
The more closely followed core producer index also rose 0.2% in May. The core index is usually viewed by investors and the Federal Reserve as a better gauge of inflationary pressure because it excludes the volatile food and energy categories. The core rate has risen a slower 2.1% over the past 12 months.
Economists surveyed by MarketWatch had predicted increases of 0.1% for overall producer prices and 0.2% for the core rate.
The price index for intermediate goods, such as the cloth used to make clothes or stamped metal parts used in engines, rose 0.9% last month.
Excluding food and energy, core intermediate prices also increased 0.9%. The core component of PPI is viewed as a key leading indicator of inflation.
Crude prices — the cost of raw materials — fell 4.0% in May, the government’s data showed. It was the biggest one-month drop since summer 2009.
Jeffry Bartash is a reporter for MarketWatch in Washington.
