AP News

Ahead of the Bell: US Wholesale Prices

WASHINGTON (AP) — A measure of U.S. wholesale prices likely rose only slightly in May, adding to evidence that inflation remains tame.

Economists forecast that the Labor Department's producer price index ticked up 0.1 percent last month, according to a survey by FactSet. The index fell 0.7 percent in April and 0.6 percent in March. The drop in April was the biggest in three years.

Cheaper gas drove the big declines in March and April. But economists expect that wholesale gas costs fell by a much smaller amount in May.

Core prices, which exclude volatile food and energy, are forecast to have also risen only 0.1 percent.

The Labor Department will release the May producer price index at 8:30 a.m. EDT Friday.

Mild inflation gives the Federal Reserve more latitude to continue with its aggressive policies to spur greater economic growth.

Aside from sharp swings in gas prices, consumer and wholesale inflation has increased very slowly in the past year. 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.

Wholesale prices rose just 0.6 percent in the 12 months ending in April. That was the smallest year-over-year gain since July 2012.

Core prices have risen just 1.7 percent in the past 12 months. That's just below the Fed's 2 percent inflation target.

The Fed has said 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.

Toyota's Hydrogen Man
blog comments powered by Disqus