Food and Gas Drove Wholesale Prices Up in May

In addition, the Labor Department reported that 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 department also said on 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.

Confidence in the economy has fallen in June to a lower level than economists estimated, according to the Thomson Reuters/University of Michigan survey.

Scott King, senior fiduciary investment adviser at Unified Trust in Lexington, Ky., said that investors were disappointed on Friday by the decline in consumer confidence. He described the economy as “plodding along.”

“Wage growth continues to be pretty meager, and unemployment continues to be lackluster,” Mr. King said.

The Federal Reserve said on Friday that factory production rose just 0.1 percent in May from April, a sign that manufacturing was providing little support for the economy. Output fell 0.4 percent in April and 0.3 percent in March.

Factories produced more autos, computers and wood products last month, offsetting declines in the production of furniture and primary metals.

Manufacturing output has risen 1.7 percent in the last 12 months.

“Manufacturers are still struggling to cope with the ongoing weakness of global demand,” said Paul Dales, senior U.S. economist at Capital Economics.

In wholesale prices, the increase last month came after 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 food and energy, rose 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,” Mr. Dales said in a note to clients.

Aside from sharp swings in gas prices, consumer and wholesale inflation has increased very slowly in the last year. Both the overall and core indexes have risen just 1.7 percent in the 12 months ending in May. That is less than 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, making it harder for retailers and other businesses to raise prices.

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

Nearly two-thirds of the 0.1 percent increase in core prices was caused by 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.

Article source: http://www.nytimes.com/2013/06/15/business/food-and-gas-drove-wholesale-prices-up-in-may.html?partner=rss&emc=rss