RTTNews - Wholesale prices rose much less than expected last month, easing concern that inflation pressures would force authorities to back off their stimulus efforts to keep prices in check.
A rise in energy prices contributed to the overall increase, but core prices edged down, as a weak economy curtails demand and weighs on prices.
Still, economists warn that inflation remains a long-term threat, with the Federal Reserve pumping money into the system and the federal government raising spending to stimulate the economy.
The U.S. Labor Department revealed that producer prices rose 0.2 percent in May. This followed a 0.3 percent increase for April and a 1.2 percent decline for March.
Compared with last year, wholesale prices were down 5 percent.
Core producer prices, which leave out the impact of the volatile food and energy sectors, edged down by 0.1 percent for May. In April, the figure was up by 0.1 percent.
Energy prices rebounded after recent declines. The sector saw a 2.9% increase in producer prices last month, following declines of 0.1 percent and 5.5 percent in April and March, respectively.
Gasoline prices jumped by 13.9 percent.
The tame wholesale inflation data comes as a relief to those fearing that the government's massive stimulus efforts will lead to significant inflationary pressures.
While it is still an open question whether authorities will be able to ease off the stimulus before prices begin to rise substantially, the latest data indicates that at least for now worries of an inflation spike are premature.
Inflation fears remain a long term concern, said Lindsey Piegza, economic analyst at FTN Financial, in a note to clients, but warned that more pressing are the deflationary pressures facing the economy with a tremendous labor and output gap still waiting to be filled.
Still, Piegza stressed that the longer-term danger is for higher higher prices.
Remember, however, inflation is a lagging indicator which can take up to two years to recover after the economy itself shows signs of stabilization and ultimately a return to positive growth, the economist noted.
On Wednesday, the government will release data on consumer prices. The report will be even more closely watched than the producer price report, as it provides a better view of how inflation is impacting retail prices.
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